1 00:00:02,720 --> 00:00:10,600 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,600 --> 00:00:14,560 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:14,640 --> 00:00:18,560 Speaker 1: Eastern on Applecarplay and Android Auto with the Bloomberg Business App. 4 00:00:18,640 --> 00:00:21,920 Speaker 1: Listen on demand wherever you get your podcasts, or watch 5 00:00:21,960 --> 00:00:24,080 Speaker 1: us live on YouTube. 6 00:00:24,200 --> 00:00:27,120 Speaker 2: The retail earnings from Walmart out of the gate, it 7 00:00:27,240 --> 00:00:30,280 Speaker 2: sounded good. They raise their full year sales guidance, but 8 00:00:30,400 --> 00:00:32,599 Speaker 2: it missed on the bottom line. It shares her down 9 00:00:32,640 --> 00:00:35,479 Speaker 2: about four percent. So here to give us more details 10 00:00:35,520 --> 00:00:39,479 Speaker 2: on that is Jennifer Bartasha. She's Bloomberg Intelligence senior analysts retail, 11 00:00:39,520 --> 00:00:43,680 Speaker 2: Staples and package Foods. Jenn Welcome to the show. Were 12 00:00:43,680 --> 00:00:46,640 Speaker 2: the expectations just a little bit too hi? Coming into 13 00:00:46,680 --> 00:00:47,760 Speaker 2: the print? I mean what happened? 14 00:00:48,760 --> 00:00:50,800 Speaker 3: Well, when I look at this quarter, it really is 15 00:00:51,120 --> 00:00:53,600 Speaker 3: it's really more about one off kind of things that 16 00:00:53,640 --> 00:00:56,760 Speaker 3: were unanticipated, and so I don't know that there's any 17 00:00:56,760 --> 00:00:59,440 Speaker 3: way the street really could have anticipated, you know, higher 18 00:00:59,480 --> 00:01:02,440 Speaker 3: costs for related to you know, having to to hold 19 00:01:02,480 --> 00:01:06,840 Speaker 3: money back for settling claims. So if you look at 20 00:01:06,880 --> 00:01:09,560 Speaker 3: the quarter on paper, it was actually a pretty good quarter, 21 00:01:09,720 --> 00:01:13,000 Speaker 3: especially in a very volatile backround, you know, background. 22 00:01:12,600 --> 00:01:13,000 Speaker 4: That we have. 23 00:01:14,480 --> 00:01:16,160 Speaker 5: What are they saying about the consumer, the health of 24 00:01:16,360 --> 00:01:19,280 Speaker 5: consumer gen because nobody has a better pulse finger on 25 00:01:19,319 --> 00:01:20,600 Speaker 5: the pulse than Walmart. 26 00:01:21,560 --> 00:01:23,399 Speaker 3: Very true. I mean, when when you look at the 27 00:01:23,400 --> 00:01:26,959 Speaker 3: health of the consumer, you know, Walmart is definitely capitalizing 28 00:01:27,000 --> 00:01:30,240 Speaker 3: on whatever willingness there is to spend. I think one 29 00:01:30,280 --> 00:01:33,800 Speaker 3: of the very interesting takeaways from the results today is 30 00:01:33,800 --> 00:01:37,520 Speaker 3: that in Sam's Club everything was driven by units sold, 31 00:01:37,959 --> 00:01:40,720 Speaker 3: and in Walmart US, you know, their traffic was up 32 00:01:40,760 --> 00:01:43,360 Speaker 3: and their and their ticket was up. That means that 33 00:01:43,480 --> 00:01:46,720 Speaker 3: Walmart is really unique across other retailers in terms of 34 00:01:46,800 --> 00:01:50,240 Speaker 3: selling greater volumes, which really means that they're bringing more 35 00:01:50,280 --> 00:01:53,080 Speaker 3: and more people into that ecosphere. And they did call 36 00:01:53,160 --> 00:01:56,120 Speaker 3: out higher income households as one of those biggest contributors. 37 00:01:56,640 --> 00:01:59,560 Speaker 2: Now you're comparing Okay to Walmart to let's say, a 38 00:01:59,560 --> 00:02:02,400 Speaker 2: Sam's Up. What about Walmart to a Target? 39 00:02:02,440 --> 00:02:03,280 Speaker 5: As far as. 40 00:02:03,280 --> 00:02:06,320 Speaker 2: How tariffs affect them, I mean, do towers affect Walmart 41 00:02:06,360 --> 00:02:07,960 Speaker 2: differently than they affect Target? 42 00:02:09,080 --> 00:02:11,640 Speaker 3: Well, I would. I would argue that that Target actually 43 00:02:11,639 --> 00:02:14,320 Speaker 3: has a little bit greater exposure to tariffs than Walmart. 44 00:02:14,360 --> 00:02:17,880 Speaker 3: And that's simply because, as Paul knows, Walmart is the biggest, 45 00:02:18,080 --> 00:02:20,480 Speaker 3: you know, grocery retailer in the United States, and it 46 00:02:20,520 --> 00:02:24,840 Speaker 3: takes a big chunk of their revenue, and Walmart imports 47 00:02:24,680 --> 00:02:29,240 Speaker 3: as a result a little bit less that said, you know, 48 00:02:29,320 --> 00:02:31,520 Speaker 3: I think one of the other differences is Walmart has 49 00:02:31,520 --> 00:02:34,240 Speaker 3: doubled down on improving the quality and the assortment in 50 00:02:34,280 --> 00:02:36,799 Speaker 3: their general merchandise. And one of the things that they 51 00:02:36,800 --> 00:02:39,040 Speaker 3: called out today is that they're seeing market share gains 52 00:02:39,080 --> 00:02:42,600 Speaker 3: and things like apparel and fashion, which are traditionally the 53 00:02:42,680 --> 00:02:46,040 Speaker 3: areas that target has excelled at. So that that's also 54 00:02:46,080 --> 00:02:48,920 Speaker 3: an interesting takeaway looking at the two retailers between yesterday 55 00:02:48,919 --> 00:02:49,760 Speaker 3: and today. 56 00:02:50,840 --> 00:02:54,000 Speaker 5: What do you think here going forward, Jen, these retailers 57 00:02:54,040 --> 00:02:57,880 Speaker 5: will try to do with any tariff induced cost increases. 58 00:02:57,919 --> 00:03:00,200 Speaker 5: Are they going to take as much as a hen 59 00:03:00,320 --> 00:03:03,160 Speaker 5: in the margin before passing on the consumer or how 60 00:03:03,200 --> 00:03:04,040 Speaker 5: do you think you're going to do that? 61 00:03:05,200 --> 00:03:08,360 Speaker 3: Well, I think in order to preserve value, value perception 62 00:03:08,440 --> 00:03:10,519 Speaker 3: is really important, and that's what's going to help keep 63 00:03:10,520 --> 00:03:13,920 Speaker 3: you retain market help you retain market share. So I 64 00:03:13,919 --> 00:03:17,240 Speaker 3: think price increases will be a last resort. But you know, 65 00:03:17,600 --> 00:03:20,760 Speaker 3: the impact of tariffs has been very gradual, and I 66 00:03:20,800 --> 00:03:22,440 Speaker 3: think what we're going to see is, is we get 67 00:03:22,440 --> 00:03:25,960 Speaker 3: into second half with all of these retailers, the inventory 68 00:03:26,000 --> 00:03:28,800 Speaker 3: they currently have on hand, much of which they accelerated 69 00:03:28,840 --> 00:03:31,760 Speaker 3: to get in ahead of tariffs, is now being sold 70 00:03:31,840 --> 00:03:34,840 Speaker 3: and it's being replaced at higher cost. So we're seeing 71 00:03:34,920 --> 00:03:38,720 Speaker 3: inventory go up basically off of the cost of inventory itself. 72 00:03:39,560 --> 00:03:42,880 Speaker 3: And how will they sell that through without having to 73 00:03:42,920 --> 00:03:46,480 Speaker 3: do markdowns and without having to absorb too much cost 74 00:03:46,600 --> 00:03:49,520 Speaker 3: is really what's what's going to be critical. I do 75 00:03:49,560 --> 00:03:51,480 Speaker 3: think margins are going to be pressured a little bit 76 00:03:51,480 --> 00:03:54,400 Speaker 3: more in the second half because of that, and because 77 00:03:54,400 --> 00:03:56,320 Speaker 3: that they are going to have to take some strategic 78 00:03:56,360 --> 00:03:59,040 Speaker 3: price increases where they can, They're just going to be 79 00:03:59,160 --> 00:04:01,240 Speaker 3: very targeted and where they do that, Jan. 80 00:04:01,280 --> 00:04:03,880 Speaker 2: Can you get into delivery and e commerce? Because that 81 00:04:03,960 --> 00:04:06,440 Speaker 2: has been a big help for Walmart? I mean, it 82 00:04:06,720 --> 00:04:09,600 Speaker 2: would it eventually give Amazon some competition? 83 00:04:09,680 --> 00:04:10,040 Speaker 5: Where is it? 84 00:04:10,040 --> 00:04:10,960 Speaker 2: Where does it stand there? 85 00:04:12,000 --> 00:04:12,200 Speaker 6: Well? 86 00:04:12,240 --> 00:04:14,880 Speaker 3: I think one of the big competitive advantages for Walmart 87 00:04:14,960 --> 00:04:17,840 Speaker 3: is the stores and the proximity to people's houses. So 88 00:04:17,960 --> 00:04:21,520 Speaker 3: the ability to deliver quickly and two people's homes on 89 00:04:21,560 --> 00:04:24,480 Speaker 3: a same day or a few hours basis is really 90 00:04:24,520 --> 00:04:28,159 Speaker 3: a competitive advantage. That they have. E Commerce is growing 91 00:04:28,240 --> 00:04:32,680 Speaker 3: at an incredibly healthy clip for Walmart, and as a 92 00:04:32,720 --> 00:04:35,560 Speaker 3: result of that, we're seeing, you know, the higher margin 93 00:04:35,680 --> 00:04:39,840 Speaker 3: businesses like advertise digital advertising really grow as well. And 94 00:04:39,880 --> 00:04:43,839 Speaker 3: that also helps, you know, strengthen ensure up the overall 95 00:04:43,880 --> 00:04:47,760 Speaker 3: financial position of the company. So that focus on expanding 96 00:04:47,800 --> 00:04:51,600 Speaker 3: digital sales I think we will continue, and they're really 97 00:04:51,640 --> 00:04:54,719 Speaker 3: executing well on those strategic objectives, and I think we'll 98 00:04:54,720 --> 00:04:57,640 Speaker 3: see a lot of that type of focus as we 99 00:04:57,680 --> 00:05:00,000 Speaker 3: get into the end of the back to school season 100 00:05:00,160 --> 00:05:01,440 Speaker 3: and into the holiday season. 101 00:05:01,839 --> 00:05:03,960 Speaker 5: All right, this is Walmart we're talking about, Jen, Why 102 00:05:03,960 --> 00:05:06,320 Speaker 5: can't they just raise prices five to ten percent on 103 00:05:06,480 --> 00:05:08,800 Speaker 5: light bulbs and whatever? I mean, where am I going 104 00:05:08,880 --> 00:05:12,200 Speaker 5: to go if they do that? I mean, it's Walmart, well. 105 00:05:12,000 --> 00:05:14,640 Speaker 3: It is, but I mean their culture is steeped in 106 00:05:14,880 --> 00:05:19,560 Speaker 3: being the lowest possible price provider, and so, you know, 107 00:05:19,600 --> 00:05:22,120 Speaker 3: I think that part of the reason they've been able 108 00:05:22,160 --> 00:05:25,000 Speaker 3: to gain market share in recent years as we saw 109 00:05:25,160 --> 00:05:28,440 Speaker 3: very high food inflation, is that they're really focused on 110 00:05:29,040 --> 00:05:32,520 Speaker 3: preserving that price gap to other competitors. So you're right, Paul, 111 00:05:32,560 --> 00:05:35,880 Speaker 3: they could raise prices by five percent, and Walmart does 112 00:05:36,000 --> 00:05:39,480 Speaker 3: raise prices when it's needed. We saw prices grow up 113 00:05:39,600 --> 00:05:43,240 Speaker 3: during the period of food inflation, but they're also one 114 00:05:43,279 --> 00:05:46,120 Speaker 3: of the fastest to take prices back down when they can, 115 00:05:46,920 --> 00:05:48,600 Speaker 3: and so I think that they've got a team of 116 00:05:49,320 --> 00:05:52,160 Speaker 3: merchants who are very skilled at deciding when and where 117 00:05:52,200 --> 00:05:54,840 Speaker 3: they need to take price, and because they sell such 118 00:05:54,839 --> 00:05:58,640 Speaker 3: a broad variety of categories and items, it doesn't have 119 00:05:58,720 --> 00:06:01,239 Speaker 3: to be a uniform price hike across the entire company. 120 00:06:01,560 --> 00:06:03,440 Speaker 2: In the last minut or so we have here, I mean, 121 00:06:03,480 --> 00:06:06,240 Speaker 2: can you just explain how they keep their prices so low? 122 00:06:06,279 --> 00:06:07,480 Speaker 2: I mean, how are they able to do it? 123 00:06:07,720 --> 00:06:08,440 Speaker 5: I don't get it. 124 00:06:09,560 --> 00:06:12,200 Speaker 3: Well, there's a self fulfilling cycle in retail, which is 125 00:06:12,240 --> 00:06:16,040 Speaker 3: that as you sell more units, you get better prices 126 00:06:16,080 --> 00:06:19,039 Speaker 3: when you're buying them right, because you're selling higher volumes. 127 00:06:19,680 --> 00:06:22,640 Speaker 3: And so Walmart has really gotten into that cycle where 128 00:06:22,880 --> 00:06:25,880 Speaker 3: they're selling such big volumes that they're able to procure 129 00:06:25,920 --> 00:06:30,040 Speaker 3: even better purchasing terms, and so that definitely helps them 130 00:06:30,080 --> 00:06:33,479 Speaker 3: with the ability to keep prices level when other competitors 131 00:06:33,560 --> 00:06:36,159 Speaker 3: who may not have the benefit of that type of 132 00:06:36,200 --> 00:06:39,120 Speaker 3: cycle are having to pay slightly higher costs. 133 00:06:40,240 --> 00:06:43,320 Speaker 5: Stay with us more from Bloomberg Intelligence coming up after this. 134 00:06:45,520 --> 00:06:49,239 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 135 00:06:49,320 --> 00:06:52,000 Speaker 1: weekdays at ten am. He's done on Apple, Cocklay and 136 00:06:52,000 --> 00:06:55,280 Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand 137 00:06:55,320 --> 00:07:00,120 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 138 00:07:00,240 --> 00:07:02,640 Speaker 5: Back to the world of M and A. We had 139 00:07:02,640 --> 00:07:04,080 Speaker 5: a little bit of a trade here, I'm gonna say 140 00:07:04,200 --> 00:07:05,360 Speaker 5: kind of more than a little bit of a trade, 141 00:07:05,400 --> 00:07:08,800 Speaker 5: Toma Bravo agreeing to acquire day Force and a deal 142 00:07:08,800 --> 00:07:12,240 Speaker 5: about twelve point three billion dollar deal. Let's break this 143 00:07:12,280 --> 00:07:16,560 Speaker 5: thing down with Niroshptel, Bloomberg Contelligence senior software anamals Neuraj. First, 144 00:07:16,600 --> 00:07:20,160 Speaker 5: tell us what does day Force do and why are 145 00:07:20,160 --> 00:07:21,680 Speaker 5: they selling themselves to Tomo Bravo. 146 00:07:23,400 --> 00:07:27,320 Speaker 6: Yeah, dave Force is in the HR payroll software space, 147 00:07:27,360 --> 00:07:30,960 Speaker 6: so consider the back office segment. This total market's about 148 00:07:30,960 --> 00:07:35,040 Speaker 6: fifty billion in size, about ten percent growth rate. So 149 00:07:35,080 --> 00:07:38,960 Speaker 6: they're selling modules when they're trying to imboard employees. They're 150 00:07:38,960 --> 00:07:42,800 Speaker 6: doing performance reviews all the way to retirement type of services. 151 00:07:43,640 --> 00:07:45,720 Speaker 2: So what kind of struggles have they been going through 152 00:07:45,880 --> 00:07:47,200 Speaker 2: that Tomo Bravo is coming in. 153 00:07:48,280 --> 00:07:51,240 Speaker 6: Yeah, that's an interesting question, Lisa. From our view, we 154 00:07:51,480 --> 00:07:54,840 Speaker 6: have not a lot of struggle here. It's more normalization 155 00:07:54,920 --> 00:07:57,120 Speaker 6: of growth in the industry. They have a ten to 156 00:07:57,160 --> 00:08:00,880 Speaker 6: twelve percent forecasted growth rate ahead from the next two years, 157 00:08:01,320 --> 00:08:06,160 Speaker 6: but that's considerably down from twenty plus percent in twenty 158 00:08:06,200 --> 00:08:09,400 Speaker 6: twenty two and twenty twenty three. But that's more of 159 00:08:09,440 --> 00:08:13,040 Speaker 6: the industry shift from being able to sell to new 160 00:08:13,080 --> 00:08:17,360 Speaker 6: customers and now reliance on existing customers. And when they're 161 00:08:17,400 --> 00:08:21,280 Speaker 6: selling to existing customers, the big sale is behind them, 162 00:08:21,320 --> 00:08:24,480 Speaker 6: the big payroll sale is behind them. Now they're adding 163 00:08:24,520 --> 00:08:28,040 Speaker 6: on two to four dollars type of price per user 164 00:08:28,440 --> 00:08:32,080 Speaker 6: when they're selling talent modules or learning modules and some 165 00:08:32,160 --> 00:08:35,640 Speaker 6: of the other HR software aspects. 166 00:08:36,200 --> 00:08:40,160 Speaker 5: Why is day Force selling here. It's not you don't 167 00:08:40,200 --> 00:08:42,840 Speaker 5: see it, but it's a little bit unusual for growing 168 00:08:42,880 --> 00:08:46,120 Speaker 5: software technology companies to sell to private equity. 169 00:08:47,720 --> 00:08:50,760 Speaker 6: Yeah, that's a good point, Paul. I think two years 170 00:08:50,760 --> 00:08:54,800 Speaker 6: ago this would be seen as too cheap. Let's say 171 00:08:55,160 --> 00:08:58,600 Speaker 6: five times forward sales about twenty seven on a price 172 00:08:58,640 --> 00:09:02,520 Speaker 6: to earnings for twenty two twenty six, So there would 173 00:09:02,520 --> 00:09:04,880 Speaker 6: have been a little pushback. Maybe there would have been 174 00:09:04,960 --> 00:09:09,680 Speaker 6: some other competing bids coming in today, application software has 175 00:09:09,760 --> 00:09:13,480 Speaker 6: faced a lot of pressure. Not only this normalization, there's 176 00:09:13,480 --> 00:09:16,920 Speaker 6: an oversupply in the mid market space in terms of 177 00:09:17,000 --> 00:09:19,880 Speaker 6: software all the way from sales and marketing, even in 178 00:09:19,920 --> 00:09:23,600 Speaker 6: the HR and software and payroll space. So that's an issue. 179 00:09:23,640 --> 00:09:26,600 Speaker 6: I think the other issue here is that you don't 180 00:09:26,600 --> 00:09:29,400 Speaker 6: have a lot of churn from the large incumbents like 181 00:09:29,440 --> 00:09:32,679 Speaker 6: the ADP and the workday that was fuel for these 182 00:09:32,720 --> 00:09:35,839 Speaker 6: smaller mid market players to get a little boost to 183 00:09:35,880 --> 00:09:38,440 Speaker 6: their revenue growth. So I think, you know, there's an 184 00:09:38,480 --> 00:09:40,720 Speaker 6: issue here with the industry. There isn't a lot of buyers. 185 00:09:40,720 --> 00:09:43,240 Speaker 6: There's a lot of supply here, especially as you move 186 00:09:43,320 --> 00:09:44,000 Speaker 6: down market. 187 00:09:44,480 --> 00:09:46,520 Speaker 2: And I'm reading through it in the rush of the article, 188 00:09:46,520 --> 00:09:48,880 Speaker 2: and it seems like Toma Brobot has been pretty busy. 189 00:09:48,880 --> 00:09:51,000 Speaker 2: I mean, I'm seeing, you know, agreed to purchase Boeing 190 00:09:51,080 --> 00:09:54,320 Speaker 2: Companies flight navigation unit. But isn't this a pretty tough 191 00:09:54,320 --> 00:09:57,600 Speaker 2: time for private equity companies that are looking to deploy capital. 192 00:09:58,080 --> 00:10:00,760 Speaker 2: Can you talk about that and about some the action 193 00:10:00,880 --> 00:10:01,480 Speaker 2: that they've seen. 194 00:10:03,440 --> 00:10:07,800 Speaker 6: Yeah, when we look at Tomo Bravo's kind of past history, 195 00:10:07,679 --> 00:10:11,199 Speaker 6: they are one of the top application software and generally 196 00:10:11,320 --> 00:10:15,600 Speaker 6: software ecquisitors, and I think we've seen that pace slow 197 00:10:15,679 --> 00:10:18,640 Speaker 6: down over the last two years. Prices have come in, 198 00:10:19,280 --> 00:10:22,320 Speaker 6: but what they're targeting is more focused. They're looking for 199 00:10:22,360 --> 00:10:26,840 Speaker 6: these platforms that have a lot of AI opportunity, but 200 00:10:27,080 --> 00:10:30,080 Speaker 6: that needs to be leveraged and pulled out of the businesses. 201 00:10:30,760 --> 00:10:33,719 Speaker 6: Before application software was more steady, you sell on a 202 00:10:33,760 --> 00:10:38,320 Speaker 6: subscription type of basis. That business models in jeopardy, especially 203 00:10:38,440 --> 00:10:42,320 Speaker 6: as enterprise users leverage LMS to do more of the 204 00:10:42,400 --> 00:10:45,200 Speaker 6: job scope. So we're not sure where the future business 205 00:10:45,320 --> 00:10:48,400 Speaker 6: model goes. When you go off a dollar per user, 206 00:10:48,440 --> 00:10:50,480 Speaker 6: are you going to go on a consumption basis or 207 00:10:50,520 --> 00:10:53,520 Speaker 6: a token basis? So that's up in the air right now. 208 00:10:54,679 --> 00:10:55,040 Speaker 1: How are the. 209 00:10:55,040 --> 00:10:58,600 Speaker 5: Business conditions broadly defined nearage for your part of the 210 00:10:58,640 --> 00:11:00,960 Speaker 5: technology space, the application software space. 211 00:11:01,040 --> 00:11:06,840 Speaker 4: How are the fundamentals for your business? Fundamentals are stable. 212 00:11:07,080 --> 00:11:09,280 Speaker 4: We came into the year at about eleven and a 213 00:11:09,320 --> 00:11:12,400 Speaker 4: half percent sales growth for twenty twenty five. Over the 214 00:11:12,400 --> 00:11:14,520 Speaker 4: first two quarter quarters. 215 00:11:14,120 --> 00:11:17,000 Speaker 6: That has bumped up to about thirteen percent, so about 216 00:11:17,040 --> 00:11:20,760 Speaker 6: one hundred and fifty bases point lift. And the margins 217 00:11:20,800 --> 00:11:23,679 Speaker 6: they continue to leverage, reducing sales and marketing expenses, so 218 00:11:23,720 --> 00:11:26,280 Speaker 6: they're getting about a three hundred basis point lift on 219 00:11:26,440 --> 00:11:30,280 Speaker 6: operating profit margins, which average around twenty seven percent, So 220 00:11:30,440 --> 00:11:34,120 Speaker 6: pretty good stable financial models. The issue is this AI 221 00:11:34,320 --> 00:11:37,400 Speaker 6: overhang has knocked down these stocks. These stocks are down 222 00:11:37,960 --> 00:11:43,120 Speaker 6: on average eight percent, Application overall Software Universe and application 223 00:11:43,280 --> 00:11:47,000 Speaker 6: software is down twelve percent, and it's this AI risk 224 00:11:47,120 --> 00:11:50,120 Speaker 6: that's really clouded. Are they going to be able to 225 00:11:50,160 --> 00:11:52,760 Speaker 6: sell their software at the same pace and the same 226 00:11:52,840 --> 00:11:55,560 Speaker 6: dollar level or is it going to move and migrate 227 00:11:55,640 --> 00:11:58,280 Speaker 6: to an AI agent which is going to be doing 228 00:11:58,360 --> 00:11:59,600 Speaker 6: the software function. 229 00:12:00,040 --> 00:12:02,120 Speaker 2: In the last minute, so we have here left. Is 230 00:12:02,160 --> 00:12:04,120 Speaker 2: this one of tomar Brobo's biggest deals. 231 00:12:06,160 --> 00:12:09,559 Speaker 6: No, I think over the last couple of years. Yes, 232 00:12:10,120 --> 00:12:13,520 Speaker 6: it is definitely one of their biggest deals, and they're 233 00:12:13,520 --> 00:12:17,040 Speaker 6: not paying so so much relative to some past deals 234 00:12:17,040 --> 00:12:19,920 Speaker 6: that were in the seventy eight times in the software space. 235 00:12:21,400 --> 00:12:24,559 Speaker 5: Stay with us more from Bloomberg Intelligence coming up after this. 236 00:12:26,679 --> 00:12:30,400 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 237 00:12:30,480 --> 00:12:33,559 Speaker 1: weekdays at ten am Eastern on Apple Corplay and Android 238 00:12:33,559 --> 00:12:36,880 Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever 239 00:12:36,920 --> 00:12:40,480 Speaker 1: you get your podcasts, or watch us live on YouTube. 240 00:12:40,840 --> 00:12:42,400 Speaker 5: All Right, A piece of news that I kind of 241 00:12:42,520 --> 00:12:47,080 Speaker 5: found interesting today was Boeing China says they're gonna are 242 00:12:47,160 --> 00:12:50,120 Speaker 5: Boeing maybe they're in talks itself to five hundred planes 243 00:12:50,160 --> 00:12:52,840 Speaker 5: to China, and that's big. I mean, they're not giving 244 00:12:52,880 --> 00:12:54,959 Speaker 5: those things away there. Seems you're kind of expensive. And 245 00:12:55,000 --> 00:12:58,520 Speaker 5: it really opens back up potentially that Chinese market, which 246 00:12:58,520 --> 00:13:00,920 Speaker 5: has been challenging for or Boeing and some of the 247 00:13:00,920 --> 00:13:04,000 Speaker 5: other Western players, said Phillip Joints Us here Bloomberg, Chief 248 00:13:04,000 --> 00:13:06,080 Speaker 5: correspondent for Global Aviation. He Joints is here on a 249 00:13:06,080 --> 00:13:10,960 Speaker 5: Bloomberg Interactive broker studio here, So sid what's happening here 250 00:13:11,040 --> 00:13:12,320 Speaker 5: with Boeing in China. 251 00:13:12,920 --> 00:13:15,760 Speaker 7: So we understand that Boeing is in talks with China 252 00:13:15,920 --> 00:13:17,880 Speaker 7: for a large aircraft deal, which could be as many 253 00:13:17,920 --> 00:13:20,839 Speaker 7: as five hundred planes. And what we understand is that 254 00:13:20,880 --> 00:13:25,600 Speaker 7: the Chinese government is currently asking airlines in China what 255 00:13:25,679 --> 00:13:28,880 Speaker 7: their requirements are and sort of gauging the various options 256 00:13:28,920 --> 00:13:32,840 Speaker 7: for what sort of aircraft, what sort of size of aircraft, 257 00:13:32,920 --> 00:13:36,200 Speaker 7: what sort of range and everything, and then they potentially 258 00:13:36,240 --> 00:13:39,440 Speaker 7: could agree to a deal as part of a broader 259 00:13:39,480 --> 00:13:43,200 Speaker 7: reconciliation on trade between Trump and President she when they 260 00:13:43,320 --> 00:13:44,240 Speaker 7: meet in the fall. 261 00:13:45,080 --> 00:13:46,520 Speaker 5: Just a red headline want to get in there. The 262 00:13:46,600 --> 00:13:51,400 Speaker 5: DOJ official urges fed Pal to remove Governor Lisa Cook. 263 00:13:51,400 --> 00:13:52,800 Speaker 5: We'll have more reporting on that coming up. 264 00:13:52,960 --> 00:13:55,600 Speaker 2: That's interesting. Okay, Sid, a little bit of background, can 265 00:13:55,640 --> 00:13:58,040 Speaker 2: you give us? So this is like a sales route 266 00:13:58,040 --> 00:14:01,240 Speaker 2: stretches back to when US President Donald Trump last visit 267 00:14:01,320 --> 00:14:03,760 Speaker 2: in twenty seventeen. Can you paint the backstory for us? 268 00:14:03,880 --> 00:14:06,760 Speaker 7: Yes, So, Boying has been largely shut out of the U, 269 00:14:06,880 --> 00:14:09,719 Speaker 7: out of the Chinese market, and China is one of 270 00:14:09,800 --> 00:14:12,360 Speaker 7: the fastest growing aviation markets in the world, and Boeing 271 00:14:12,360 --> 00:14:15,720 Speaker 7: has been largely shut out partly because of trade tensions. 272 00:14:16,040 --> 00:14:18,480 Speaker 7: China was also the first country to ground the sevent 273 00:14:18,520 --> 00:14:21,920 Speaker 7: thry seven Max after those two fatal crashes back in 274 00:14:21,960 --> 00:14:25,960 Speaker 7: twenty nineteen, and so for Boeing, this is a sort 275 00:14:25,960 --> 00:14:29,080 Speaker 7: of massive step forward in terms of being able to 276 00:14:29,280 --> 00:14:33,320 Speaker 7: garner a new business instead of being able to challenge Airbus. 277 00:14:33,360 --> 00:14:36,640 Speaker 7: I mean Airbus has but we've reported yesterday that Airbus 278 00:14:36,640 --> 00:14:38,640 Speaker 7: is potentially going to win a five hundred plane order 279 00:14:38,640 --> 00:14:42,960 Speaker 7: from China as well. So China needs new airplanes. Airlines 280 00:14:43,000 --> 00:14:45,920 Speaker 7: in China are looking to replace alder Fleet. They're also 281 00:14:45,960 --> 00:14:49,760 Speaker 7: looking to get growth in and Comac, which is the 282 00:14:49,800 --> 00:14:53,440 Speaker 7: local Chinese company which is building a competitor to the 283 00:14:53,440 --> 00:14:56,880 Speaker 7: seventry seven and the Airbus A three twenty isn't yet 284 00:14:56,960 --> 00:14:59,200 Speaker 7: at scale, so they're not able to produce as many 285 00:14:59,240 --> 00:15:01,840 Speaker 7: planes as they would need to actually replace that market. 286 00:15:01,920 --> 00:15:03,960 Speaker 7: So it is a massive market for both. 287 00:15:04,000 --> 00:15:05,520 Speaker 5: Would you get on one of those planes? I haven't 288 00:15:05,520 --> 00:15:08,200 Speaker 5: heard about these planes? So all these Chinese planes. 289 00:15:08,040 --> 00:15:10,560 Speaker 7: So C nine one nine's is a competitor to the 290 00:15:10,560 --> 00:15:13,040 Speaker 7: E three twenty and it does have a lot of 291 00:15:13,040 --> 00:15:16,400 Speaker 7: Western components in it. So the engines are made by CFM, 292 00:15:16,760 --> 00:15:20,160 Speaker 7: which also makes engines for Boeing and Airbus, and it's 293 00:15:20,200 --> 00:15:22,720 Speaker 7: got avionics from Honeywell, so it's got a lot of 294 00:15:22,880 --> 00:15:26,800 Speaker 7: Western components in it. And this sort of ramp up 295 00:15:26,840 --> 00:15:29,000 Speaker 7: of the aircraft has been very very slow, so they 296 00:15:29,000 --> 00:15:31,200 Speaker 7: haven't actually been able to deliver many planes. I mean 297 00:15:31,200 --> 00:15:34,200 Speaker 7: they're still building them in the fives and tens of 298 00:15:34,440 --> 00:15:36,960 Speaker 7: a year, and so for the Chinese airlines they need 299 00:15:37,000 --> 00:15:38,880 Speaker 7: to replace them. 300 00:15:39,120 --> 00:15:41,680 Speaker 2: So what is this deal contingent apartment? What can make it? 301 00:15:41,720 --> 00:15:42,360 Speaker 5: What can break it? 302 00:15:42,400 --> 00:15:45,760 Speaker 7: So we understand that this deal is contingent on actually 303 00:15:45,920 --> 00:15:49,320 Speaker 7: a larger trade deal. I mean, remember President Trump has 304 00:15:49,440 --> 00:15:53,520 Speaker 7: used aircraft deals as a major bargaining chip for trade 305 00:15:53,560 --> 00:15:56,800 Speaker 7: deals and trade negotiations, and we saw that massive order 306 00:15:56,840 --> 00:15:59,600 Speaker 7: from Qatar when they announced the deal there, and when 307 00:15:59,640 --> 00:16:01,560 Speaker 7: he went in his midle East to he had lots 308 00:16:01,600 --> 00:16:05,360 Speaker 7: of aircraft deals, and so aircraft purchases have become a 309 00:16:05,480 --> 00:16:09,000 Speaker 7: very large part of trade in Trump's in Trump's economy, 310 00:16:09,040 --> 00:16:11,240 Speaker 7: and this would be a win for Trump if they 311 00:16:11,240 --> 00:16:13,360 Speaker 7: can actually get a deal across the line. 312 00:16:13,200 --> 00:16:17,440 Speaker 5: Where where is Boeing on the seven thirty seven max deliveries? 313 00:16:17,520 --> 00:16:20,080 Speaker 5: Because I know they're I don't know, thirty eight per 314 00:16:20,080 --> 00:16:21,680 Speaker 5: month or something, but they like to get it above 315 00:16:21,680 --> 00:16:23,160 Speaker 5: what do you like to get it to fifty? And 316 00:16:23,360 --> 00:16:25,840 Speaker 5: that's when the real cash flow really starts coming in. 317 00:16:25,840 --> 00:16:26,600 Speaker 5: Where are they these. 318 00:16:26,560 --> 00:16:28,800 Speaker 7: So Boeing's around thirty eight a month and that's where 319 00:16:28,840 --> 00:16:30,960 Speaker 7: the cap is at the moment, where the FA cap 320 00:16:31,000 --> 00:16:34,440 Speaker 7: deproduction I forgot after the door flew out last year, 321 00:16:34,560 --> 00:16:37,840 Speaker 7: and so it's a problem. They're trying to get production 322 00:16:37,960 --> 00:16:40,080 Speaker 7: back up and get it to a level where they 323 00:16:40,120 --> 00:16:42,800 Speaker 7: can actually start making money. And that's part of Kelly 324 00:16:42,800 --> 00:16:45,920 Speaker 7: Ottberg's turnaround effort to actually ramp up production off the 325 00:16:45,920 --> 00:16:49,320 Speaker 7: seven thury seven and actually start generating cash from that aircraft. 326 00:16:49,520 --> 00:16:52,040 Speaker 7: And so they are looking to sort of ramp up 327 00:16:52,160 --> 00:16:53,960 Speaker 7: beyond thirty eight a month by the end of the year, 328 00:16:54,440 --> 00:16:56,160 Speaker 7: and as they ended next year, they could sort of 329 00:16:56,240 --> 00:16:57,360 Speaker 7: see that going up further. 330 00:16:57,840 --> 00:16:59,800 Speaker 2: How are they doing against air boss, I mean, are 331 00:16:59,800 --> 00:17:01,640 Speaker 2: they doing better against the competition? 332 00:17:02,600 --> 00:17:05,080 Speaker 7: Not yet. I mean, Evers is still the world's biggest 333 00:17:05,480 --> 00:17:09,600 Speaker 7: aircraft supplier. They're still the world's biggest aircraft manufacturers the case. 334 00:17:09,680 --> 00:17:13,120 Speaker 7: I No, it hasn't. So I think they overtook Boeing 335 00:17:13,440 --> 00:17:15,200 Speaker 7: back in twenty eighteen or nineteen. 336 00:17:15,320 --> 00:17:16,040 Speaker 5: Yeah, I don't like that. 337 00:17:16,080 --> 00:17:19,000 Speaker 2: We need to get going back, get a new CEO, 338 00:17:19,400 --> 00:17:19,760 Speaker 2: you know. 339 00:17:19,840 --> 00:17:22,160 Speaker 5: So Boeing Okay, So just park on Lisa's question, Bob. 340 00:17:22,640 --> 00:17:25,159 Speaker 7: So boy is doing pretty well in terms of just 341 00:17:25,520 --> 00:17:28,280 Speaker 7: recovering from where the pit that they were in and 342 00:17:28,359 --> 00:17:31,399 Speaker 7: sort of the new CEO has focused on actually building 343 00:17:31,400 --> 00:17:34,760 Speaker 7: on quality. Is talked about how he's sort of encouraging 344 00:17:34,800 --> 00:17:37,920 Speaker 7: workers to speak up against any sort of quality misshaps 345 00:17:38,000 --> 00:17:41,640 Speaker 7: or any quality sort of issues, and so far it's 346 00:17:41,680 --> 00:17:45,879 Speaker 7: been a sort of big step forward for Boeing, but 347 00:17:45,880 --> 00:17:47,680 Speaker 7: they're still not out of the woods yet and they 348 00:17:47,720 --> 00:17:50,480 Speaker 7: still need to They did that massive equity raise last 349 00:17:50,560 --> 00:17:53,119 Speaker 7: year and they sort of showed up their balance sheet, 350 00:17:53,240 --> 00:17:56,399 Speaker 7: and we will look forward to seeing what actually happens 351 00:17:56,440 --> 00:17:58,239 Speaker 7: with Boeing end of the year and if they can 352 00:17:58,280 --> 00:18:00,800 Speaker 7: actually get their production beyond the thirty eight a month 353 00:18:00,840 --> 00:18:01,760 Speaker 7: on the seven three seven. 354 00:18:02,560 --> 00:18:07,280 Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify, 355 00:18:07,440 --> 00:18:10,920 Speaker 1: and anywhere else you get your podcasts. 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