WEBVTT - BI Weekend: Kraft Heinz Split, Macy’s Earnings 0:00:00.280 --> 0:00:11.040 Bloomberg Audio, Studios, podcasts, radio news. This is Bloomberg Intelligence 0:00:11.119 --> 0:00:13.200 with Scarletfoo and Paul Sweeney. 0:00:13.280 --> 0:00:15.360 How do you think the FED is looking at tariffs? 0:00:15.560 --> 0:00:16.720 The uncertainty of terriffs. 0:00:16.840 --> 0:00:19.320 Let's take a look at the sectors and how they performed. 0:00:19.320 --> 0:00:22.400 A lot of investors getting whipsaled every day by news events. 0:00:22.079 --> 0:00:25.800 Breaking market headlines, and corporate news from across the globe. 0:00:25.840 --> 0:00:28.480 Could we see a market disruption of market events? 0:00:28.520 --> 0:00:30.560 So people just too exuberant out there? 0:00:30.680 --> 0:00:33.280 You see some so called low quality stocks driving this 0:00:33.320 --> 0:00:34.080 short term rally. 0:00:34.120 --> 0:00:39.599 Bloomberg Intelligence with Scarletfoo and Paul Sweeney on Bloomberg Radio, YouTube, 0:00:39.640 --> 0:00:41.000 and Bloomberg Originals. 0:00:41.479 --> 0:00:43.880 On Today's Bloomberg Intelligence Show, we dig inside the big 0:00:43.880 --> 0:00:46.360 business stories impacting Wall Street and the global markets. 0:00:46.440 --> 0:00:48.720 Each and every week, we provide in depth research and 0:00:48.840 --> 0:00:50.879 data on some of the two thousand companies and one 0:00:51.000 --> 0:00:53.680 hundred and thirty industries are analysts cover worldwide. 0:00:53.800 --> 0:00:56.200 Today, we'll take a look at why US judge ruled 0:00:56.240 --> 0:00:59.040 against the government's proposals to break up Google Plus. 0:00:59.040 --> 0:01:01.440 We'll look at why more AI researchers are leaving the 0:01:01.480 --> 0:01:02.320 tech giant Apple. 0:01:02.640 --> 0:01:04.720 But first we begin with news from the food and 0:01:04.800 --> 0:01:06.679 beverage company craft hinds. 0:01:06.400 --> 0:01:09.000 Because this week Craft Hines announced its plans to split 0:01:09.040 --> 0:01:12.640 into two separate publicly traded companies. One company will sell 0:01:12.680 --> 0:01:15.680 condiments and box meals, while the other will include its 0:01:15.680 --> 0:01:18.320 slower growing grocery products like lunchables. 0:01:18.480 --> 0:01:20.760 For more, Scarlet and I were joined by Jen Bartashi's 0:01:20.760 --> 0:01:24.360 Bloomberg Intelligence senior retail analysts. We first asked Jen what 0:01:24.480 --> 0:01:27.360 this news means for craft Hns ten years after its 0:01:27.360 --> 0:01:28.039 initial merger. 0:01:28.560 --> 0:01:30.440 It was just about a decade ago that they put 0:01:30.440 --> 0:01:33.319 the companies together with the plans that it would become 0:01:33.440 --> 0:01:37.080 kind of a package food powerhouse. But trends have changed 0:01:37.120 --> 0:01:39.720 and consumers have changed, and it just hasn't materialized the 0:01:39.720 --> 0:01:41.119 way they originally thought it would. 0:01:41.760 --> 0:01:43.920 So what did the two companies get out of this 0:01:44.040 --> 0:01:44.560 merger then? 0:01:46.160 --> 0:01:49.240 So, you know, when they when we're looking at what 0:01:49.280 --> 0:01:52.920 they brought together, they brought together some products where they 0:01:52.920 --> 0:01:55.360 were able to recognize some synergies, They were able to 0:01:55.960 --> 0:01:59.440 do some co branding, some you know, product development, that 0:01:59.520 --> 0:02:02.680 sort of thing. But as I said, the consumer has 0:02:02.760 --> 0:02:06.840 changed and demand for shelf stable packaged food products is 0:02:06.920 --> 0:02:09.040 just less than it was, and so we've seen multiple 0:02:09.080 --> 0:02:12.360 years where scanner data shows that Kraft Heiind's brands have 0:02:12.440 --> 0:02:14.679 sort of been shrinking a little bit, and I think 0:02:14.720 --> 0:02:17.560 this separation is an attempt to kind of reinvigorate growth 0:02:17.560 --> 0:02:18.920 in different parts of their portfolio. 0:02:19.440 --> 0:02:22.160 You mentioned several times how the consumer has changed. Let's 0:02:22.160 --> 0:02:24.160 dig into that a little bit more. Are we talking 0:02:24.160 --> 0:02:27.839 about because of the anti obesity drugs like GLP one? 0:02:28.040 --> 0:02:31.480 Is it a case where RFK and Make America Healthy 0:02:31.520 --> 0:02:34.919 Again is really taking root? I mean, this is kind 0:02:34.960 --> 0:02:38.239 of a slow moving shift in the consumer, right. 0:02:39.040 --> 0:02:41.680 It is, indeed, Scarlet, it's a slow moving shift, and 0:02:41.720 --> 0:02:44.760 it started, you know, coming out of the pandemic. In 0:02:44.800 --> 0:02:48.080 the pandemic, everybody sort of retreated to familiarity, right, They 0:02:48.120 --> 0:02:50.560 went back to brands, they went back to shelf stable products. 0:02:50.880 --> 0:02:53.320 And since then there's been more emphasis on things that 0:02:53.320 --> 0:02:57.639 are more natural, lower sodium, healthier for you, that sort 0:02:57.639 --> 0:02:59.760 of thing. And while craft Tiinn's has been making updates 0:02:59.760 --> 0:03:03.240 to their portfolio, it is hard to envision how kind 0:03:03.240 --> 0:03:07.480 of electric orange mac and cheese has a long term growth, 0:03:08.120 --> 0:03:10.760 a long term growth appeal to people where you know, 0:03:10.840 --> 0:03:13.680 there's pressure from as you said, RFK on more like 0:03:13.840 --> 0:03:17.160 natural colorantce and things like that. So you know, their 0:03:17.160 --> 0:03:19.480 portfolio is caught in that crosshairs. 0:03:19.280 --> 0:03:22.720 When you put companies together. The pressurelease often talks about 0:03:22.760 --> 0:03:24.720 the synergies that are going to be the cost synergies, 0:03:24.760 --> 0:03:27.799 maybe some revenue synergies. Maybe are there disynergies when you 0:03:27.840 --> 0:03:28.560 break them apart? 0:03:29.400 --> 0:03:32.919 Yeah, there are dissynergies. The company expects about three hundred 0:03:32.919 --> 0:03:37.320 million dollars in disynergies. You know, thankfully most of their 0:03:37.360 --> 0:03:41.400 manufacturing practices are fairly separate, but there is a component 0:03:41.480 --> 0:03:44.600 to that craft. TIGNDS actually said in May they were 0:03:44.840 --> 0:03:47.920 exploring strategic options. There's been repeated rumors that it would 0:03:48.040 --> 0:03:50.760 result in a split of two companies, so the confirmation 0:03:50.920 --> 0:03:53.480 isn't necessarily unexpected news. 0:03:53.720 --> 0:03:56.120 Paul, disynergies, Does that just mean upfront costs? 0:03:56.320 --> 0:03:58.520 I think I need a new CFO, I need a 0:03:58.520 --> 0:04:02.200 new accounting department. I don't know, Well, so go ahead, 0:04:02.240 --> 0:04:04.960 JD Jed's what's next for the packaged food business? I mean, 0:04:05.040 --> 0:04:08.800 is this just a industry wide secular decline? 0:04:09.600 --> 0:04:12.800 Well, right now it appears to be, especially in North America, 0:04:13.160 --> 0:04:16.280 a bit of a secular decline. Pockets of growth are 0:04:16.320 --> 0:04:19.680 becoming more and more isolated, and so when you're looking 0:04:19.760 --> 0:04:23.280 at scanner data, the problem is the consumer. As I said, 0:04:23.279 --> 0:04:25.560 they're shifting behaviors, but they're just not buying as much 0:04:25.560 --> 0:04:27.960 as they used to. And you see this even with 0:04:28.320 --> 0:04:31.680 Walmart or Target or Kroger, where people used to buy 0:04:31.720 --> 0:04:34.080 in multiples and stock up their pantries, and they just 0:04:34.120 --> 0:04:37.680 don't shop that way anymore. They're buying more on an 0:04:37.680 --> 0:04:40.920 as needed basis, and part of that is the macroeconomic environment, 0:04:41.760 --> 0:04:45.320 and so that just doesn't favor these companies right now 0:04:45.560 --> 0:04:50.080 where historically they've been pantry staples. And so right now 0:04:50.120 --> 0:04:52.240 when consumers are looking what they're going to make for 0:04:52.279 --> 0:04:55.760 dinner tonight, a bigger portion of their plate is fresh foods. 0:04:55.839 --> 0:04:58.200 So the perimeter of grocery stores are doing much better 0:04:58.960 --> 0:05:01.039 than the center of the store, which is these shelf 0:05:01.080 --> 0:05:01.919 stable products. 0:05:02.240 --> 0:05:05.520 Let's talk about the folks who brought these two companies together. 0:05:05.680 --> 0:05:08.400 Is Berkshire Hathaway run by Warren Buffett and three G 0:05:08.600 --> 0:05:13.560 Capital run by a group of Brazilian operations. Guys, where 0:05:13.560 --> 0:05:16.560 did they stand in all this gen what happens to do? 0:05:16.680 --> 0:05:19.120 They each still hold steaks in the companies, I mean, 0:05:19.279 --> 0:05:21.279 do they come out looking better ten years later. 0:05:22.360 --> 0:05:25.799 Well, Berkshire Hathaway still has a large stake in the company. 0:05:26.040 --> 0:05:27.840 I think they owned just over twenty five percent of 0:05:27.880 --> 0:05:31.640 the outstanding shares. But you know, they did relinquish their 0:05:32.040 --> 0:05:35.719 their chairs on the board shortly before the strategic options 0:05:36.120 --> 0:05:39.760 were announced, or that the company was exploring strategic options, 0:05:40.240 --> 0:05:43.880 So they've been slowly pulling back you know, from the 0:05:43.920 --> 0:05:46.279 time of their initial steak. They're probably still going to 0:05:46.279 --> 0:05:48.600 come out ahead, but it has been a ten year 0:05:48.640 --> 0:05:50.120 play for them. 0:05:50.440 --> 0:05:52.600 Do we know where they're going to put their shares? 0:05:52.640 --> 0:05:54.719 Are they can go equally between the two companies, because 0:05:54.800 --> 0:05:56.919 I'd like to invest alongside. 0:05:56.480 --> 0:05:59.800 Warren Buffet I think at this point, I don't think 0:05:59.839 --> 0:06:02.359 that's been disclosed, but it is certainly something that everyone 0:06:02.360 --> 0:06:03.160 will be watching for. 0:06:03.720 --> 0:06:05.599 What will you be watching for, Jen, in terms of 0:06:05.640 --> 0:06:10.359 how competitors respond or react or move in, you know, 0:06:10.720 --> 0:06:13.120 to kind of take advantage of this breakup. 0:06:14.080 --> 0:06:15.840 I think what will be interesting is to watch the 0:06:17.080 --> 0:06:21.800 level of promotional activity. There will likely be some some 0:06:22.080 --> 0:06:26.120 effort to take market share, and craft Times is likely 0:06:26.160 --> 0:06:28.480 to up their marketing spend in order to try to 0:06:28.560 --> 0:06:31.480 drive volumes just ahead of when this split actually becomes 0:06:32.480 --> 0:06:36.239 realized to sort of show improvement in some of their 0:06:36.560 --> 0:06:40.560 legacy brands. So what that really sets up a stage 0:06:40.560 --> 0:06:43.440 for is actually probably good for the everyday shopper and 0:06:43.480 --> 0:06:46.760 that they'll be probably more sale items, more discounts. But 0:06:46.920 --> 0:06:49.640 it also means that it's less profitable sales for the 0:06:49.680 --> 0:06:52.680 companies that are involved in chasing that market share, so 0:06:52.720 --> 0:06:55.600 it will be interesting to watch how it unfolds. Companies 0:06:55.640 --> 0:06:58.520 only expecting this to close or to be realized that 0:06:58.600 --> 0:07:01.279 this second half of next year, so there's some time 0:07:01.279 --> 0:07:02.640 for those dynamics to play out. 0:07:03.120 --> 0:07:06.680 Our thanks to Jen bartashis Bloomberg Intelligence senior retail analysts. 0:07:06.720 --> 0:07:09.440 We turn next to more news in the consumer product space. 0:07:09.680 --> 0:07:13.040 This week, activist investor Elliott Investment Management announced it built 0:07:13.040 --> 0:07:15.360 a stake of about four billion dollars in the food 0:07:15.400 --> 0:07:16.760 and beverage company PepsiCo. 0:07:17.080 --> 0:07:20.360 This makes Elliott one of PepsiCo's largest investors, and after 0:07:20.400 --> 0:07:23.320 the announcement, Elliott outlined its plans for the beverage company. 0:07:23.360 --> 0:07:27.880 This includes potentially restructuring its beverage unit and reviewance Snack's offerings. 0:07:28.080 --> 0:07:29.880 For more on all of this. Scarlett and I were 0:07:29.920 --> 0:07:33.240 joined by Kensha Bloomberg Intelligence, senior consumer products analysts. We 0:07:33.320 --> 0:07:35.920 first asked Ken what the future looks like for PepsiCo 0:07:36.160 --> 0:07:38.280 and whether the company could eventually break up. 0:07:38.680 --> 0:07:42.240 I wrote a report or Bloomberg Intelligence saying that given 0:07:42.320 --> 0:07:44.560 the weakness of the stock, is really just a matter 0:07:44.600 --> 0:07:47.280 of time where these talks are going to be revived. Recall, 0:07:47.360 --> 0:07:52.560 back in twenty fourteen, try On, an activist, actually advocated 0:07:52.560 --> 0:07:55.320 that breaking the company up between beverages and foods. The 0:07:55.360 --> 0:07:57.520 company decided not to do it. It made the case 0:07:57.560 --> 0:08:01.360 that it was getting good synergies between the two. Fast 0:08:01.400 --> 0:08:04.200 Forward Elliott isn't quite going that far. And Elliot's letter 0:08:04.360 --> 0:08:07.560 it said it believes that value can be created by 0:08:07.680 --> 0:08:11.600 simply having the beverage side, roughly forty percent of the business, 0:08:12.000 --> 0:08:15.360 just refranchise their bottling operations and plain English, what that 0:08:15.400 --> 0:08:20.200 means is to divest those capital intensive operations manufacturing operations 0:08:20.200 --> 0:08:23.840 that create the finished product from the syrups and concentrates 0:08:24.120 --> 0:08:28.320 that Pepsi, the beverage company sells. That's really the golden 0:08:28.760 --> 0:08:31.440 part of that business, you know, the jewel that business 0:08:31.480 --> 0:08:34.120 is the concentrate business. That's what Coca Cola does. Coca 0:08:34.120 --> 0:08:38.480 Colatus sells concentrate syrups or high margin to third parties 0:08:38.679 --> 0:08:41.319 to make the product. PepsiCo chooses to do it in house. 0:08:42.160 --> 0:08:46.720 That results in tying up capital, lower margins, and so on. 0:08:47.240 --> 0:08:49.000 At the same time, Eliot is also saying on the 0:08:49.040 --> 0:08:54.720 food side, perhaps some SKU rationalization is due, meaning there's 0:08:54.720 --> 0:08:56.760 a lot of food products there that they may not 0:08:56.960 --> 0:09:00.320 be well suited to sell. The Freda Ley is doing 0:09:00.360 --> 0:09:03.520 it really well, although it's a kind of a slowdown 0:09:03.600 --> 0:09:07.320 right now with many consumer products. It's the Quaker foods. 0:09:07.640 --> 0:09:09.760 I think it's really targeting and saying, you know, maybe 0:09:09.840 --> 0:09:12.679 some reduction there maybe in order. So that's really what 0:09:12.679 --> 0:09:14.120 what the gist is today with Pepsi. 0:09:14.240 --> 0:09:17.040 All right, Ken, thank you for that very very detailed rundown. 0:09:17.080 --> 0:09:18.400 I want to pick up on what you were talking 0:09:18.440 --> 0:09:21.680 about with the bottling business, refranchising the bottling business, which 0:09:21.720 --> 0:09:24.360 is what Coca Cola does right now. What does Coca 0:09:24.360 --> 0:09:26.360 Cola give up by doing that? I mean, there had 0:09:26.360 --> 0:09:28.400 to be a reason why Pepsi chose to keep it 0:09:28.440 --> 0:09:29.600 in house up until now. 0:09:30.280 --> 0:09:32.560 Yeah, that's a great question, Scarlett. So go back in 0:09:32.600 --> 0:09:35.760 time with ten fifteen years ago or so, both companies 0:09:36.040 --> 0:09:40.560 had done that. They both had separated those businesses. Petsico 0:09:40.760 --> 0:09:44.480 decided to retain or it so and then it brought 0:09:44.480 --> 0:09:46.480 it back and it decided to keep it and made 0:09:46.480 --> 0:09:49.439 the case. At the time that's the soft drink business 0:09:49.640 --> 0:09:52.800 was in a downturn, volumes were weak. They thought by 0:09:52.880 --> 0:09:57.040 gaining more control of those bottling operations, they could right 0:09:57.120 --> 0:09:59.240 size the ship if they could get it back in 0:09:59.360 --> 0:10:03.400 order lining the interest between the bottlers and the company. 0:10:03.480 --> 0:10:06.960 Because I'm gonna remember Coca Cola. By separating it, it 0:10:07.080 --> 0:10:10.199 is to some degree giving up a little it's accepting 0:10:10.200 --> 0:10:12.240 a little risk. I mean, these are third parties, or 0:10:12.320 --> 0:10:14.840 these are independent companies. They can sell beer, they can 0:10:14.880 --> 0:10:17.120 do other things. PepsiCo didn't want them to do that. 0:10:17.120 --> 0:10:19.640 PepsiCo said, look, we want you to be fully aligned 0:10:19.640 --> 0:10:22.440 with what we want. So that's what they said. They 0:10:22.559 --> 0:10:24.960 gained from that, and I guess there's some truth to that, 0:10:26.160 --> 0:10:28.199 But you're giving up a lot also for the factors 0:10:28.200 --> 0:10:29.040 that I mentioned before. 0:10:29.760 --> 0:10:32.080 Ken, you've been covering this consumer space for a long time. 0:10:32.120 --> 0:10:34.800 You've seen the cycles come and go. It seems like 0:10:34.840 --> 0:10:37.520 we're in a cycle of breaking these companies up. I 0:10:37.559 --> 0:10:40.719 mean you've seen this game before. How do you think 0:10:40.720 --> 0:10:42.800 this is going to play out across the consumer space? 0:10:44.240 --> 0:10:48.040 Well, you know, given the PepsiCo stock before today was 0:10:48.040 --> 0:10:50.280 down about twenty percent over the last two years. So 0:10:50.320 --> 0:10:53.960 it's really disappointed investors. And beyond that, it's that their 0:10:54.440 --> 0:10:57.840 long term algorithm of high single digit comparable EPs growth 0:10:57.880 --> 0:10:59.480 is not going to happen this year. They're looking at 0:10:59.520 --> 0:11:04.439 flat this year, and investors see the writing on the wall, 0:11:04.440 --> 0:11:06.920 they see a slow down, and they're saying, look, maybe 0:11:06.920 --> 0:11:09.720 there's more than just a cyclical element here. Maybe there 0:11:09.760 --> 0:11:13.960 are some structural things this company can do. I think 0:11:13.960 --> 0:11:17.239 Elliott's making some good points here, and I think PepsiCo 0:11:17.480 --> 0:11:19.559 ought to follow through on some of these if they 0:11:19.600 --> 0:11:22.679 want to regain some of the low sentiment that's out 0:11:22.720 --> 0:11:23.720 there among investors. 0:11:24.559 --> 0:11:27.040 Do you expect other investors to jump in here and 0:11:27.720 --> 0:11:31.480 kind of ride on Elliott Management's coattails? I mean, is 0:11:31.600 --> 0:11:35.520 Elliott going to be empowered to ask for more going forward? 0:11:36.880 --> 0:11:39.360 That's a great question. I think there's going to be 0:11:39.360 --> 0:11:41.600 some supporters of Elliott. Like I said, I think Elliott's 0:11:41.600 --> 0:11:45.240 making some fair points. PepsiCo has been really disappointing on 0:11:45.280 --> 0:11:47.960 the operational side. And like I said in the Stock Front, 0:11:48.440 --> 0:11:51.120 I think it ought to be open ears to listen 0:11:51.160 --> 0:11:53.520 to what Elliott says. I think others will support Elliott 0:11:53.559 --> 0:11:54.160 in this case. 0:11:54.240 --> 0:11:57.760 Yes, our thanks to Ken Shape Bloomberg Intelligence senior consumer 0:11:57.800 --> 0:12:00.560 products analysts. Coming up, we'll look at why the department 0:12:00.559 --> 0:12:03.040 store chain Maycy's raised its guidance. 0:12:02.600 --> 0:12:05.679 For the year. You're listening to Bloomberg Intelligence on Bloomberg Radio, 0:12:05.840 --> 0:12:08.240 providing in depth research and data on two thousand companies 0:12:08.280 --> 0:12:09.640 in one hundred and thirty industries. 0:12:09.840 --> 0:12:13.280 You can access Bloomberg Intelligence via bi go on the terminal. 0:12:13.400 --> 0:12:14.520 I'm Scarlettfoo and. 0:12:14.600 --> 0:12:16.599 I'm Paul Sween. This is Bloomberg. 0:12:21.240 --> 0:12:26.160 This is Bloomberg Intelligence with Scarlettfoo and Paul Sweeney on 0:12:26.320 --> 0:12:27.400 Bloomberg Radio. 0:12:27.960 --> 0:12:30.559 We moved next to some news from the tech giant Alphabet. 0:12:30.760 --> 0:12:34.440 This week, US judge ahmit Meta ruled against the government's 0:12:34.480 --> 0:12:35.720 proposal to break up Google. 0:12:36.080 --> 0:12:38.320 This includes a forced sale of its Chrome browser in 0:12:38.320 --> 0:12:41.439 the biggest antitrust case in three decades, and the ruling 0:12:41.760 --> 0:12:43.880 is seen as a setback for the US government in 0:12:43.920 --> 0:12:46.200 its bid to curb the power of big tech companies. 0:12:46.559 --> 0:12:49.280 For more, Scarlet and I were joined by Jenniferree, Bloomberg 0:12:49.280 --> 0:12:52.360 Intelligence senior litigation analysts. We first asked jen for a 0:12:52.440 --> 0:12:54.640 clarification on the recent court ruling. 0:12:55.200 --> 0:12:57.520 You know, really the court aligned much more so with 0:12:57.559 --> 0:13:00.360 what Google proposed than what the Department of Justice post. 0:13:00.480 --> 0:13:04.040 No divestiture of Chrome or contingent divestor of Android, because 0:13:04.040 --> 0:13:07.960 that was in there. Some data sharing, no exclusive agreements, 0:13:08.720 --> 0:13:12.640 some search syndication, meaning a search engine can basically provide 0:13:12.640 --> 0:13:15.560 results that just comes straight from Google, right, They're mimicking Google. 0:13:16.080 --> 0:13:19.000 The surprising thing though here, and what was great for 0:13:19.080 --> 0:13:22.240 Apple is that the judge said Google could continue to 0:13:22.280 --> 0:13:25.439 pay for search default positions. That's with Apple. With Mozilla, 0:13:25.760 --> 0:13:28.680 it pays some OEMs to pre install Google Search on 0:13:28.720 --> 0:13:31.480 the Android phones that they group that they manufacture, and 0:13:31.520 --> 0:13:33.440 that I think was a really big surprise. 0:13:34.080 --> 0:13:36.800 How is this remedy consistent with the original ruling, with 0:13:36.840 --> 0:13:38.439 the original finding of the court. 0:13:38.880 --> 0:13:41.120 You know, I actually have a really big problem with 0:13:41.280 --> 0:13:43.880 aligning those two things because I don't think that it is. 0:13:44.240 --> 0:13:47.120 In terms of no Chrome divestiture, I think it's very consistent. 0:13:47.160 --> 0:13:49.160 And Paul, you know, I've been on this show before 0:13:49.200 --> 0:13:51.160 and I've been saying for two years that there would 0:13:51.200 --> 0:13:53.719 not be a chrome divestiture ordered here. But where it's 0:13:53.760 --> 0:13:58.320 inconsistent is with this default position. Because having a monopoly 0:13:58.400 --> 0:14:00.880 is not illegal, but it's the conduct that maintains the 0:14:00.920 --> 0:14:03.920 monopoly that's exclusionary, that is illegal. And what the judge 0:14:03.920 --> 0:14:06.679 found in that liability decision that the conduct that was 0:14:06.720 --> 0:14:10.760 illegal were the default agreements. Right, This was exclusionary. This 0:14:10.880 --> 0:14:13.160 kept other search engines from being able to grow and 0:14:13.200 --> 0:14:16.440 scale and get better. He's allowing those default positions to 0:14:16.440 --> 0:14:18.680 stay in place. Now it's a shorter term, it's only 0:14:18.720 --> 0:14:22.040 for one year. Theoretically, in one year or one year 0:14:22.040 --> 0:14:24.600 after that, other search engines that have improved can compete 0:14:24.600 --> 0:14:27.840 for that contract. But it's still odd to me that 0:14:27.920 --> 0:14:30.400 what is found to be illegal is allowed to continue. 0:14:31.080 --> 0:14:35.000 What does this mean for just Silicon Valley in general? 0:14:35.080 --> 0:14:38.000 Can I sit back if I'm a CEO in Silicon 0:14:38.040 --> 0:14:40.120 Valiant saying Hm, the courts are maybe a little bit 0:14:40.160 --> 0:14:43.360 more aligned with our industry how we think about the 0:14:43.400 --> 0:14:45.240 world than maybe the government. 0:14:46.200 --> 0:14:48.600 I would say that the way Silicon Valley can think 0:14:48.600 --> 0:14:50.800 about it is that this judge was cautious, and this 0:14:50.920 --> 0:14:54.200 judge did talk about needing to apply caution when you're 0:14:54.200 --> 0:14:58.120 dealing with tech markets and Silicon valley companies, because judges 0:14:58.160 --> 0:15:01.120 don't understand it. They don't want to m pack the route, 0:15:01.200 --> 0:15:04.120 the innovation and the natural course of the industry, right, 0:15:04.640 --> 0:15:06.960 They don't want to distort that, And so it does 0:15:07.000 --> 0:15:09.200 suggest that it's more likely a judge is going to 0:15:09.200 --> 0:15:13.480 be cautious in future remedies for other cases. But what 0:15:13.560 --> 0:15:15.360 I think everybody has to keep in mind, because I've 0:15:15.400 --> 0:15:17.480 seen people talking about the fact that there's read through 0:15:17.520 --> 0:15:20.520 for some of these other monopolization cases, I don't really 0:15:20.560 --> 0:15:23.760 think that there is, because the facts are entirely different 0:15:23.880 --> 0:15:26.560 case by case, the markets are entirely different, and what 0:15:26.680 --> 0:15:30.760 made a divestitor remedy inappropriate here doesn't necessarily exist as 0:15:30.760 --> 0:15:34.120 a fact pattern. Let's say an FTCB Meta or usdojb 0:15:34.200 --> 0:15:36.880 Apple or the other DOJ case against Google in the 0:15:36.920 --> 0:15:39.720 ad tech space. Those are different cases with different facts, 0:15:39.720 --> 0:15:42.600 and I don't think that there's necessarily a read through 0:15:42.840 --> 0:15:45.880 that companies are safe from divestiture orders because of this one. 0:15:46.080 --> 0:15:50.160 Do we think that AI the quickness and how it's 0:15:50.200 --> 0:15:53.680 developing played any kind of role in the judge's decision here? 0:15:53.880 --> 0:15:54.040 Oh? 0:15:54.080 --> 0:15:58.600 Absolutely, the judge even observed that in the liability hearing, 0:15:58.640 --> 0:16:00.800 which was now a year and a half or so ago, 0:16:01.120 --> 0:16:03.880 that AI barely came up at all other than by Google, 0:16:03.920 --> 0:16:05.760 it barely came up. But in the remedies hearing it 0:16:05.800 --> 0:16:08.200 was all about AI and the witnesses were all AI. 0:16:08.240 --> 0:16:09.720 And he says, it just shows in a year, a 0:16:09.800 --> 0:16:11.920 year and a half, how much things have changed, and 0:16:12.280 --> 0:16:15.320 the fact that you now have real competition to general 0:16:15.360 --> 0:16:17.800 search other than other general search engines. And I think 0:16:17.840 --> 0:16:18.920 that impacted him a lot. 0:16:19.360 --> 0:16:23.000 Our Thanks to Jennifer Ree, Bloomberg Intelligence Senior litigation analyst. 0:16:23.480 --> 0:16:25.920 Staying on tech, this week, we learned that the tech 0:16:25.960 --> 0:16:30.080 giant Apple lost Gian Jang, its lead AI researcher for 0:16:30.160 --> 0:16:31.520 robotics to meta platforms. 0:16:31.960 --> 0:16:35.000 Three more AI researchers are also leaving Apple's in house 0:16:35.080 --> 0:16:38.560 large Language Models team to join other companies. The departures 0:16:38.600 --> 0:16:41.120 are part of an exodus of AI talent from Apple, 0:16:41.280 --> 0:16:44.280 and the AI departures may only worsen with a potential 0:16:44.320 --> 0:16:46.240 shift toward using third party models. 0:16:46.560 --> 0:16:48.880 For more on this and all things Apple, Scarlet and 0:16:48.920 --> 0:16:51.920 I were joined by Mark German, Bloomberg news Managing editor 0:16:51.960 --> 0:16:54.680 for Global Consumer Tech First to ask Mark if he 0:16:54.720 --> 0:16:57.640 thinks it's a problem Apple is losing its AI experts. 0:16:58.160 --> 0:17:02.600 It's only a problem if it impacts the consumer, and 0:17:03.320 --> 0:17:07.560 right now, Apple's AI efforts are impacting the consumer because 0:17:07.600 --> 0:17:12.280 Apple Intelligence and Siri lag very much in comparison to 0:17:12.600 --> 0:17:16.560 competing products on other platforms. Now, this can all be 0:17:16.680 --> 0:17:19.679 turned around. Right You've got the ability for Apple to 0:17:19.720 --> 0:17:22.720 do partnerships. I predict there'll be some sort of big 0:17:22.760 --> 0:17:25.639 AI partnership for Apple. I've reported that they were in 0:17:25.680 --> 0:17:28.359 talks with Google and AI partnership. I've reported they've been 0:17:28.359 --> 0:17:32.080 in talks with Anthropic and Open Ai on potential AI partnerships. 0:17:32.080 --> 0:17:34.560 They get one of those done, it's a different ballgame. 0:17:35.040 --> 0:17:37.639 They buy a company. I reported first reported over the 0:17:37.640 --> 0:17:40.520 summer that they've talked to Mistral reported that they talk 0:17:40.600 --> 0:17:43.399 to Perplexity. I don't expect either of those deals to 0:17:43.400 --> 0:17:47.200 get done, but that certainly shows you where their head's at. Okay, 0:17:47.800 --> 0:17:49.840 if this all gets turned around with a major new 0:17:49.920 --> 0:17:53.119 version of Siri next year, if they get the Apple 0:17:53.160 --> 0:17:57.000 Intelligence pipeline heading in the right direction, if they buy 0:17:57.080 --> 0:17:59.680 and hire the right LLLM people, they could be in 0:17:59.720 --> 0:18:02.560 pretty good shape. Don't forget Apple has the best ecosystem, 0:18:02.840 --> 0:18:05.720 they have the best hardware, and they're able to deploy 0:18:05.800 --> 0:18:08.679 new features and operating system upgrades faster than any other company. 0:18:09.400 --> 0:18:11.760 And so at the end of the day, this is 0:18:11.800 --> 0:18:14.600 still their game to lose because there are so many 0:18:14.680 --> 0:18:17.399 levers they can pull, especially with their cash balance, to 0:18:17.400 --> 0:18:18.200 turn this thing around. 0:18:18.440 --> 0:18:20.520 So why haven't they done any of those things so far? 0:18:20.520 --> 0:18:22.960 Why are they waiting? What's the hold up? 0:18:23.359 --> 0:18:28.159 Well, you know Apple, Unfortunately for them, they're very tied 0:18:28.200 --> 0:18:31.639 to a couple cycles, right. They have their spring cycle 0:18:32.080 --> 0:18:34.439 and then they have their fall cycle. The fall cycle 0:18:34.480 --> 0:18:37.359 has been set for some time. There's really no changing that. 0:18:37.359 --> 0:18:40.200 That's locked and loaded. You'll see the introduction of those 0:18:40.240 --> 0:18:43.800 products and those software features next Tuesday at the iPhone 0:18:43.800 --> 0:18:47.320 seventeen launch event. The spring is really the next opportunity 0:18:47.440 --> 0:18:50.040 for there to be major new features, right, that's when 0:18:50.040 --> 0:18:52.399 they're going to roll out pretty big update to iOS 0:18:52.400 --> 0:18:55.720 twenty six called iOS twenty six point four. At that time, 0:18:55.840 --> 0:18:58.320 I expect them to release an overhauled version of Siri 0:18:58.600 --> 0:19:00.159 that are going to fix a lot of these. 0:19:00.080 --> 0:19:01.640 Issues that's all supposed about now. 0:19:02.160 --> 0:19:04.080 It is a long time, yeah, it is a long time. 0:19:04.160 --> 0:19:06.560 And the truth of the matter is that the AI 0:19:06.640 --> 0:19:09.920 space runs far more quickly than even the mobile space. 0:19:10.000 --> 0:19:11.880 You saw a lot of innovation in the smartphone space 0:19:11.920 --> 0:19:14.560 for the last two decades. AI is moving ten times 0:19:14.560 --> 0:19:15.200 as fast. 0:19:15.000 --> 0:19:18.280 As that, and they're aware of that. They're smart people. 0:19:18.920 --> 0:19:21.280 I guess they've made the decision that they're comfortable with 0:19:21.400 --> 0:19:24.959 their timing. Did they run the risk of making a 0:19:25.080 --> 0:19:28.399 fund fundamental error in their judgment of that timing. 0:19:28.560 --> 0:19:30.800 I don't think they're comfortable with the timing. I think 0:19:30.840 --> 0:19:33.840 that the timing was actually even further out. I wasn't 0:19:33.880 --> 0:19:38.440 expecting a major new version of sery with incredible enhancements 0:19:38.440 --> 0:19:41.280 for consumers, probably not until the end of twenty six 0:19:41.400 --> 0:19:44.560 or sometime. Even had the tail out of twenty twenty seven. 0:19:44.800 --> 0:19:46.360 So this is going to be happening at least six 0:19:46.359 --> 0:19:50.280 to twelve months sooner than Apple had originally planned. They 0:19:50.359 --> 0:19:54.000 are probably one or two years away if they did 0:19:54.040 --> 0:19:57.919 nothing of starting to bleed share to competing smartphones with 0:19:58.000 --> 0:20:00.600 major AI features right now. Tell you the truth. We 0:20:00.640 --> 0:20:02.760