Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Intelligence with Alex Steinhl and Paul'sweeny.
Speaker 1: The real app performance has been in US corporate high yield.
Speaker 3: Are the companies lean enough? Have they trimmed all the fats?
Speaker 1: The semiconductor business is a really cyclical business.
Speaker 2: Breaking market headlines and corporate news from across the globe.
Speaker 3: Do investors like the M and A that we've seen?
Speaker 1: These are two big time blue chip companies.
Speaker 4: The window between the peak and cut changing super fast.
Speaker 2: Bloomberg Intelligence with Alex Steinhl and Paul'sweenye on Bloomberg Radio.
Speaker 1: Today's Bloomberg Intelligence Show, we dig inside the big business
Speaker 1: stories impacting Wall Street and the global markets.
Speaker 4: Each and every week we provide in depth research and
Speaker 4: data on some of the two thousand companies and one
Speaker 4: hundred and thirty industries our analysts cover worldwide.
Speaker 1: Today, we'll look at why offshore wind industry, particularly in
Speaker 1: the US, has been struggling.
Speaker 4: Plaus We'll discuss why the CEO Elon Musk's companies may
Speaker 4: be under threat as Tesla struggles.
Speaker 1: But first we dive into M and A in the
Speaker 1: oil and gas industry. This week Conoco Phillips agreed to
Speaker 1: require Marathon Oil in an all stock deal, value in
Speaker 1: the company at about seventeen billion dollars.
Speaker 4: The move expands Conicco Phillips footprint and domestic shale fields
Speaker 4: from Texas to North Dakota. It also adds to the
Speaker 4: wave of recent mega deals as producers are betting that
Speaker 4: oil and gas demand will remain robust for years to come.
Speaker 1: For more, we were joined by Vince Piazza, Bloomberg Intelligence,
Speaker 1: senior equity research Channels, who covers the oil and gas space.
Speaker 4: We first ask bens and if this deal makes Conicgo
Speaker 4: Phillips bigger or better.
Speaker 5: I think a little bit of both. It makes them.
Speaker 6: Better in certain basins because it does consolidate an opportunity
Speaker 6: set in places like the Delaware, the Baking and even
Speaker 6: the Eagle Forward.
Speaker 5: But it does extend the franchise into other areas that
Speaker 5: probably dilutes some of that narrative. You know, the narrative
Speaker 5: has been consolidate streamline leverage to what you do best.
Speaker 5: We saw that in the Permian. We saw that for
Speaker 5: natural gas as well, with Southwestern and Chesapeake likely getting together.
Speaker 5: So in this case you have some pieces of that
Speaker 5: marathon pie. That may not work as well within the
Speaker 5: broader Conicco platform, but that's an opportunity set to divest
Speaker 5: some of those pieces and really concentrate around Texas and
Speaker 5: the Bakan. But the bocket itself is maturing as well.
Speaker 5: What you're really getting here is a ton of free
Speaker 5: cash flow as well. You know, this is consistent with
Speaker 5: the formula, the theme, the narrative that we've heard and
Speaker 5: seen in the past, the acquirer using a slightly higher
Speaker 5: multiple to do an all stock transaction by the company,
Speaker 5: bring those assets, those cash flow generating assets that's into
Speaker 5: the platform, lower the spend, generate that free cash flow,
Speaker 5: be able to boost the ordinary dividend and also the
Speaker 5: supplemental dividend and support the stock by buying back shares
Speaker 5: as well. And in this case financially, financially, engineering wise,
Speaker 5: it actually works out right.
Speaker 1: Hey, Vince, I noticed you know there's a lot of
Speaker 1: M and A stuff going on in your energy world here.
Speaker 1: Do the regulators care about this stuff?
Speaker 5: Oh yeah, they will take a serious look at this.
Speaker 5: They will increase the scrutiny of all of these deals.
Speaker 5: I know that they're looking to close this by four
Speaker 5: q twenty twenty four. I think that's kind of tight.
Speaker 5: We have seen other deals close Exxon closing Pioneer around
Speaker 5: that same time as a projected closing date as well,
Speaker 5: But there are other deals that may be prolonged. And
Speaker 5: this will be a rather large entity. It's going to
Speaker 5: be roughly, you know, two point two million barrels a
Speaker 5: day of production, so it will get scrutiny. It will
Speaker 5: get scrutiny more broadly, but in general, it's really not
Speaker 5: sizeable in those particular basins that they are consolidating.
Speaker 4: So to that point, do we see another bitter come in?
Speaker 4: So Bloomberg has reported that Devin was also interested in
Speaker 4: Marathon Oil. Do you think we see this happening now?
Speaker 5: Well, you know they were looking at it. When you
Speaker 5: work out the numbers, it would have been kind of
Speaker 5: difficult to make it work. But the increation here Conico
Speaker 5: Marathon actually works out better for Marathon holders. It's interesting
Speaker 5: because within the first three years of the deal, Conico
Speaker 5: suggests that they'll buy back as much stock as the
Speaker 5: entire market cap of Marathon, including a boosted dividend for
Speaker 5: legacy Conical holders and new holders from the Marathon purchase.
Speaker 1: You know, it's an all stock deal, which all right,
Speaker 1: I get my M and A fee Alex, but I
Speaker 1: don't get to do the high yield piece which choices
Speaker 1: mine here. So I'm not really happy with an all
Speaker 1: stocks it's evercore.
Speaker 3: I think that led kind of go on this one.
Speaker 7: Yeah.
Speaker 1: I looked at M A go. They did not have
Speaker 1: the M and advisors. They're a little bit slow on.
Speaker 8: That, Vincer.
Speaker 1: We going to see more of this. I mean, we're
Speaker 1: going to be talking to you more about M and
Speaker 1: A in your space.
Speaker 5: Yeah, we've seen it across the Permian. We've seen it
Speaker 5: in natural gas as well. Haven't seen it as much
Speaker 5: in natural gas, but I think that'll pick up as well,
Speaker 5: as we're seeing a big here for Henry Hub and
Speaker 5: various prices across the regions. When you have a industry
Speaker 5: that is in the crosshairs of both civic and political leaders,
Speaker 5: the one way to survive is to consolidate and get
Speaker 5: bigger if you're not able to grow organically.
Speaker 1: Our thanks to Vince Piatza, Bloomberg Intelligence senior equity research
Speaker 1: channelists on the oil and gas industry.
Speaker 4: We move now to big tech and Apple Apples, I
Speaker 4: on stage the rebound in China last month, with shipments
Speaker 4: rising fifty two percent. That's according to the latest figures
Speaker 4: from the China Academy of Information and Communications Technology.
Speaker 1: This all comes as Apple and it's Chinese retailers have
Speaker 1: been cutting prices since it start of twenty twenty four,
Speaker 1: following steep declines.
Speaker 4: For more, we're joined by aniog Rana, Bloomberg Intelligence Technology analysts.
Speaker 4: We first asked anarog for his reaction to the data.
Speaker 9: This is the way I looked at it in jan
Speaker 9: and feb. This data was down I think minus thirty
Speaker 9: five minus forty percent or so. And then when Apple
Speaker 9: reported their quarter, they said, you know what, mainland China,
Speaker 9: our iPhone revenue grew. So there is not that direct
Speaker 9: correlation between the two numbers. And it could be because
Speaker 9: there are times when Apple, you know, sells phone, but
Speaker 9: it's stuck in the inventory channel in between. Then they
Speaker 9: put out a sale and then gets cleared up. So
Speaker 9: it's a question of timing not so much. But the
Speaker 9: big thing for us is that there was a downdraft
Speaker 9: of negative news coming out of China. It's turned positive
Speaker 9: two months in a row, so that's a good news.
Speaker 9: Seems more like a cyclical issue to me than a
Speaker 9: structural problem of people giving away Apple phones not buying it.
Speaker 8: So that's not the case. So that's a good news.
Speaker 8: So I think, you know, from an overall point of sentiment.
Speaker 9: Point of view, I think this is good news for
Speaker 9: Apple that China, which in our view is the most
Speaker 9: important market for them over the next three to five years,
Speaker 9: and we are not going to see you know, let's
Speaker 9: say eurobar declining share. I think it's going to be
Speaker 9: okay over the next few years, even if it goes
Speaker 9: ups and down.
Speaker 8: So that's really the big takeaway for us.
Speaker 3: So can I call this a nothing burger?
Speaker 8: No, that's not true because.
Speaker 3: I say that because you didn't hear it.
Speaker 4: But Paul was guessing you would call this data a
Speaker 4: nothing for But you're being too polite about it.
Speaker 3: I think gone a wrong.
Speaker 8: So sentiment advice, think about it.
Speaker 9: The only thing that we've been hearing for almost a
Speaker 9: year now that people don't want to buy iPhones in China,
Speaker 9: it's because of the government and nationalism and so many
Speaker 9: all things. And I think this one tells us that's
Speaker 9: not the case. People are strapped for cash and if
Speaker 9: they get a good deal on a phone, buy it.
Speaker 9: So what do I expect. I expect Apple to go
Speaker 9: out and do more promotional activities over the next few
Speaker 9: months to try and sell more products into the market. Now,
Speaker 9: not every market is different. Apple's not known to give
Speaker 9: a lot of discounts globally, but if that's what they
Speaker 9: have to do in China, that's what they have to.
Speaker 3: Do, all right, fair enough. But let's go to the
Speaker 3: discounts though for a second.
Speaker 4: So even if we don't say, take this data as gold,
Speaker 4: but just directionally, Apple and discounts tend not to go together,
Speaker 4: at least in my mind.
Speaker 3: What do you make of that?
Speaker 9: Yeah, I think this is a new thing for Apple,
Speaker 9: and again they're probably grinding their teeth and not liking it.
Speaker 9: But you know what, they have the rest of the
Speaker 9: world to make up for it. In the US, for example,
Speaker 9: people are liking to buy the higher end model, the
Speaker 9: pro model. That helps margins, that helps the average selling price.
Speaker 9: So if they have to give a little bit up
Speaker 9: to gain market share in China, I think they should
Speaker 9: do it, because you don't want to be branded as
Speaker 9: somebody a second player in China out there, which is
Speaker 9: you know, in our view the most important market for
Speaker 9: growth for Apple, what's going to happen is you're not
Speaker 9: going to see any growth in China. For that matter,
Speaker 9: their top line growth is not going to grow, and
Speaker 9: that's not good for the stock.
Speaker 8: Also, and I've talked to.
Speaker 1: Us about India. What is it as a percentage of
Speaker 1: Apple's business today and what do you think it can
Speaker 1: be five, six, seven years from now.
Speaker 9: Yeah, so in our view, apples very small, less than
Speaker 9: five percent. In fact, when we have done a lot
Speaker 9: of work on the number of shipments in India, Apple's
Speaker 9: market share is, you know, less than five percent.
Speaker 8: But here's the kicker.
Speaker 9: Ninety five percent of the phones don't even qualify for
Speaker 9: to be in the Apples you could say ecosystem, which
Speaker 9: means they're under three hundred dollars. As the Indian economy grows,
Speaker 9: as the middle class becomes more affluent, I think Apple's
Speaker 9: going to be a winner over here. But think about
Speaker 9: it this way. When we look at the US with
Speaker 9: per capita income of let's say sixty five seventy thousand dollars,
Speaker 9: somewhere in that realm, China is around twelve and a
Speaker 9: half thousand dollars. India is about two thousand, twenty five
Speaker 9: hundred dollars. So when you look at these three systems,
Speaker 9: I think when we look at that growth driver from
Speaker 9: five years onwards, that's where you know, India comes in
Speaker 9: and there's a massive market there for Apple. But that's
Speaker 9: not going to happen next year or the year after.
Speaker 4: Right, that's sort of a structural change, et cetera in
Speaker 4: the market. I don't know what else are you working
Speaker 4: on right now.
Speaker 9: I think the biggest thing right now is what happens
Speaker 9: at WWDC and whether that's going to be enough to
Speaker 9: sustain this. You know, I would say optimism that we
Speaker 9: have seen in Apple for the first time, I would
Speaker 9: say in the last eighteen months, because we all knew
Speaker 9: China was a problem. We saw that in the numbers,
Speaker 9: sales numbers and not very strong. But AI has that
Speaker 9: outside potential to go out and spur the next sale
Speaker 9: off phones. Why because there is a massive amount over
Speaker 9: forty three percent of the phones our iPhone twelve and below,
Speaker 9: which is old phones with lower you know, you could
Speaker 9: say RAM memory and other things. Now for if they
Speaker 9: go out and say I have really cool features coming
Speaker 9: into the phone you got to go find a way
Speaker 9: to upgraded. Now, if somebody has a fourteen or a fifteen,
Speaker 9: they're most likely not going to upgrade it. But if
Speaker 9: you have something that I can iPhone ten, iPhone eleven,
Speaker 9: there may be a reason enough for you to upgrade it.
Speaker 9: So that really brings a new fresh you could say
Speaker 9: life and Apple, and that's really important. On June tenth
Speaker 9: when they get this developer conference.
Speaker 1: All right, I'm sitting on an Apple iPhone eleven. When
Speaker 1: do I upgrade?
Speaker 9: You should update it in the winter when the sixteen
Speaker 9: comes out or whatever the name they give that phone,
Speaker 9: because it should have a faster processor, it should have
Speaker 9: a lot more memory. They'll just make things easier for you.
Speaker 9: You can watch your golf shows in a little bit
Speaker 9: easier way.
Speaker 1: Very good. Now, Tim Cook's sixty three, I'm gonna switch
Speaker 1: gears on you. Is there any push for this guy
Speaker 1: to put out a succession plan of note or things
Speaker 1: just going so well at Apple that nobody's pushing for that.
Speaker 9: See, Tim's done well. The Apple's done very well under Tim.
Speaker 9: I have no way of predicting what he's going to leave.
Speaker 9: But in my view, if you were to somehow ring
Speaker 9: fence the China business. Apple alone is a company that
Speaker 9: I think can do good by itself. It doesn't really
Speaker 9: need a massive charismatic leader in order to, you know,
Speaker 9: come up with that. This is a company with a
Speaker 9: global brand, the products people love, people trust the products,
Speaker 9: and the installed base is very loyal. I mean, we
Speaker 9: think somewhere in the mid nineties people can keep the phones.
Speaker 9: They don't go out and change into a new ecosystem.
Speaker 9: I think this is a phenomenal business, but you know,
Speaker 9: you do need certain innovation, but not to the level
Speaker 9: you need in other technology companies.
Speaker 1: Our thanks to anorak Ruana Bloomberg Intelligence technology analyst.
Speaker 4: Coming up, we're going to breakdown why American Airlines gave
Speaker 4: an outlook for the coming quarter the disappointed investors.
Speaker 1: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 4: I'm Paul Sweet and I'm Alex Steel and this is Bloomberg.
Speaker 2: This is Bloomberg Intelligence with Alex Steele and Paul Sweeney
Speaker 2: on Bloomberg Radio.
Speaker 4: We move now to the airline industry. This week, American
Speaker 4: Airlines issued guidance for the second quarter. The disappointed investors.
Speaker 1: The carrier slash profit and revenue expectations, and American air
Speaker 1: also acknowledged that it misjudge domestic demand heading into the
Speaker 1: crucial summer travel season.
Speaker 4: For more, we're drawn by George ferguson Bloomberg Intelligence in
Speaker 4: your Aerospace, Defense and Airlines analyst.
Speaker 1: We first asked George for his take on this week's guidance.
Speaker 10: There's some analysts that think that this is driven by
Speaker 10: they got a very much more domestically focused strategy, different
Speaker 10: corporate strategy than United in Delta. You know, I guess
Speaker 10: we're the view that American has been underperforming Delta United
Speaker 10: for the last couple quarters, especially last quarter. We saw
Speaker 10: them down in every single market, including Transatlantic, which had
Speaker 10: been an area of strength for airlines like you know, Delta.
Speaker 10: So they absolutely seem like they've been underperforming. But you know,
Speaker 10: we've taken a look at the capacity that's getting added
Speaker 10: to the market all the markets US airlines fly domestic,
Speaker 10: Latin America, you know, Atlantic and Pacific, and frankly, what
Speaker 10: we see is capacity ads that are in some cases
Speaker 10: twice GDP growth since last summer. So well, we think
Speaker 10: Americans probably going to be the worst on the downside
Speaker 10: of the big three. I think it's going to be
Speaker 10: hard for the other two to avoid similar trends. They
Speaker 10: won't be as bad, but we just see too much
Speaker 10: capacity coming to most of the markets US airlines fly too,
Speaker 10: and we think the REDA cross is probably even greater
Speaker 10: to the budget very domestically focused and Latin American focused
Speaker 10: carriers that be Southwest, that be Jet Blue, that be
Speaker 10: all the low cost carriers, So the REDA cross is
Speaker 10: probably even stronger for those carriers.
Speaker 1: So Georgia, I kind of feel my just you know,
Speaker 1: layperson's eye, United, Delta, and American. Are they all kind
Speaker 1: of the same, kind of the same strategy.
Speaker 10: No, No, not at all, all.
Speaker 1: Right, So what's different?
Speaker 3: God, exactly?
Speaker 1: Well, I fly Delta, I'm like I fly United being
Speaker 1: a Newark person myself. But so what's different about these guys.
Speaker 10: Well, they each have their own, you know, their different strengths, right,
Speaker 10: and so American really has very little presence in the
Speaker 10: Pacific region, so they don't get much pickup fares there.
Speaker 10: Are pretty strong, although coming down because capacity is getting added,
Speaker 10: but they don't get any of the Pacific tailwind because
Speaker 10: that's sort of the last recovering market right now. American
Speaker 10: is very strong, has a lot of capacity into Latin America.
Speaker 10: Latin America is very weak right now, especially near in
Speaker 10: Latin America. You know, the sort of short haul narrow
Speaker 10: body flying. There's just a lot of capacity going into
Speaker 10: beach markets, a lot of capacity coming out of Mexico.
Speaker 10: So that's a source of pain. American I think more
Speaker 10: focused than United in Delta on the US domestic market,
Speaker 10: where we're seeing United in Delta do more out across
Speaker 10: the Atlantic, where yields are yields are stronger.
Speaker 8: I kind of get the sense.
Speaker 10: That America just doesn't get to pick up from Europe
Speaker 10: like United in Delta do because I think they've just
Speaker 10: got a strong partner there in British Airway that kind
Speaker 10: of really runs Heathrow. So American gets some of it,
Speaker 10: but they don't ever seem to get as much as
Speaker 10: United in Delta do out of Europe. So they all
Speaker 10: have sort of their nuances.
Speaker 4: CCO is leaving, how long do they get back on track?
Speaker 10: So you know, again, what we see is a marketplace
Speaker 10: that isn't just this isn't an American anomaly. It's a
Speaker 10: little bit of an American anomaly, but it's a larger
Speaker 10: broader trend, and that is consumers running out of gas
Speaker 10: a bit here, especially the lower end consumer, and a
Speaker 10: lot of capacity coming to the US domestic market, the
Speaker 10: beach markets and transatlantic so I think the rest of
Speaker 10: them are coming American direction. America isn't going their direction
Speaker 10: over the near term. Over this summer, we'll see.
Speaker 7: All right.
Speaker 4: Thanks to George ferguson Bloomberg Intelligence, Senior Aerospace, Defense and
Speaker 4: Airlines analyst.
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Speaker 4: We also have something here at Bloomberg called Bloomberg New
Speaker 4: Energy Finance, and the idea behind it is to provide
Speaker 4: data on commodities, power, transport, industries, buildings, agriculture and new technology.
Speaker 1: This week we looked into offshore winds. The industry, particularly
Speaker 1: in the US, has been struggling.
Speaker 4: This comes as inflation and supply chain challenges have driven
Speaker 4: up capital expenditure, while financing costs have spiraljuterizing interest rates
Speaker 4: for more.
Speaker 1: We were joined by Oliver Metcalf BNEF, head of Wind Research.
Speaker 1: We first asked Oliver where things stand now with offshore
Speaker 1: winds in the US.
Speaker 7: It's been a difficult last twelve months for the US
Speaker 7: off shore wind industry. We saw around nine gigawatts of
Speaker 7: off take contracts, so contracts for the generation of these
Speaker 7: projects get canceled. That's around a third of the contracts
Speaker 7: that were assigned in total for the US off your
Speaker 7: wind pipeline. You mentioned there it was because of high inflation.
Speaker 7: High interest rates have really hit the technology as well.
Speaker 7: So it's a really capitally intensive technology and so a
Speaker 7: higher cost of financing hits off your wind especially hard
Speaker 7: compared with other technologies. We're beginning to see a bit
Speaker 7: of a turning of the fortunes. So we're seeing the
Speaker 7: first couple of commercial scale off your wind projects start
Speaker 7: to come online in the US. One has already come
Speaker 7: online off the coast of New York, and one that
Speaker 7: will feed Parento Massachusetts is under construction at the moment.
Speaker 7: So some good stories beginning, and we're also seeing states
Speaker 7: willing to adjust their subsidy mechanisms to account for some
Speaker 7: of the pain that projects have been feeling recently. So
Speaker 7: offer developers more protection in the contracts, the off take
Speaker 7: contracts they're offering, and just simply higher prices that these
Speaker 7: developers need to make their return.
Speaker 1: So talk to us about just wind power. How is
Speaker 1: that from an efficiency perspective versus and versus other stuff
Speaker 1: that's out there? How competitors is wind?
Speaker 7: So you get kind of higher productivity from a wind
Speaker 7: turbine compared with a solar panel, and that's even more
Speaker 7: productive offshore, and so offshore wind you have more consistent
Speaker 7: wind speeds, stronger winds as well. So that means kind
Speaker 7: of if you imagine a wind turbine operating one hundred
Speaker 7: percent of the time, that's kind of theoretical maximum. You
Speaker 7: can get between forty to sixty percent of that generation
Speaker 7: typically on a wind project. Now that sixty percent isn't
Speaker 7: too far off the kind of percentage we could see
Speaker 7: from a kind of conventional generator, a gas or a
Speaker 7: cold plant.
Speaker 3: What about like nuclear, It's a nuclear a lot better.
Speaker 7: Than that nuclear it's much harder to ramp up and down,
Speaker 7: and so they tend to operate completely as base loads,
Speaker 7: so you get really high what we call capacity factors
Speaker 7: for nuclear so it's operating almost all the time if
Speaker 7: it's if it's part of the mix.
Speaker 3: So part of the issue is the off take contract.
Speaker 4: So basically, if I'm a developer, you know, Paul goes
Speaker 4: and says, Okay, I'm going to buy this wind from
Speaker 4: you for this amount of time. He's going to pay
Speaker 4: me this, which gives me clear then how I can
Speaker 4: go and invest that money? But my cost go up
Speaker 4: and I'm kind of left naked at that point. How
Speaker 4: is that being resolved? You mentioned subsidies, but like what else?
Speaker 4: Because that gap is very unpredictable. And I remember talking
Speaker 4: to Siemens North America ahead about that and they're like,
Speaker 4: we took on all the commodity risk and they're trying
Speaker 4: to change that now because they're not commodity traders, But.
Speaker 3: Like, how do you do that?
Speaker 7: Well, Yes, it's that unpredictability that hit developers especially hard.
Speaker 7: So in the previous contracts, there's ones I was talking
Speaker 7: about that got canceled. There was very little adjustment in
Speaker 7: the contract price to account for moving commodity prices, to
Speaker 7: account for inflation. So that's the kind of thing that
Speaker 7: states are building into these contracts now to kind of
Speaker 7: better share the risk between a state which is buying
Speaker 7: the power and the developer that's building the project. So
Speaker 7: we're seeing kind of these prices getting index to CPI
Speaker 7: for example, to certain kind of producer price indexes and
Speaker 7: to certain commodity prices to make sometimes a one time
Speaker 7: adjustment from when you're reach that price to when you're
Speaker 7: actually securing finance, and sometimes you see that adjustments accounting
Speaker 7: for inflation right throughout the life of the project.
Speaker 1: That's interesting.
Speaker 7: That's the kind of structure we see in lots of
Speaker 7: other countries that have managed to build large scale off
Speaker 7: your wind projects globally, and so yeah, from the offs
Speaker 7: your wind industry's perspective, it's good to see that happening
Speaker 7: in the US as well.
Speaker 1: You mentioned the project off the coast of New York.
Speaker 1: Talked to us about the economics, how much does it
Speaker 1: cost to build that thing, who paid for it, and
Speaker 1: just the economics.
Speaker 7: So that is a project called South Fork. It was
Speaker 7: the kind of the first commercial scale offshore wind project
Speaker 7: in the US that was significantly more expensive than a
Speaker 7: project we expect to see getting installed today. That's partly
Speaker 7: because it was it was almost like a proof of concept.
Speaker 7: So up until then, there are only seven operational offshore
Speaker 7: wind turbines off the coast of the US so far.
Speaker 7: So this is the first kind of larger scale project
Speaker 7: for one of the newer projects. You're probably looking between
Speaker 7: two point eight to three billion dollars for a one
Speaker 7: gigawap project, which is a really big offshore wind from
Speaker 7: almost ten times the size of that early kind of
Speaker 7: commercial scale project that just came off the coast of
Speaker 7: New York. So these are a really sizeable infrastructure investments.
Speaker 3: Yeah, what part is the hardest?
Speaker 4: Because it seems to me that you know, moving the
Speaker 4: energy from offshore to the grid on land, like you
Speaker 4: got to like build a transmission line for that, Like
Speaker 4: that seems really hard and dangerous. And then I also
Speaker 4: hear of the transmission plug shortages, so basically the thing
Speaker 4: you need to actually plug that wind into the grid,
Speaker 4: there's a shortage of that.
Speaker 3: And then you got to build it.
Speaker 4: And there's all the raw material costs that come at
Speaker 4: actually building the turbine.
Speaker 3: Where's the biggest price increases?
Speaker 7: I mean, we saw a lot of price increases across
Speaker 7: the board over the last couple of years. Actually, when
Speaker 7: you look at a lot of commodity prices that are
Speaker 7: important for manufacturing of wind turbines, cables, that kind of thing,
Speaker 7: a lot of those raw material costs have come down.
Speaker 7: What we've seen is turbine prices have remained stubbornly high.
Speaker 7: Wind turbine makers were hit just as hard by rising costs,
Speaker 7: rising inflation, and many of them were having to deliver
Speaker 7: on contract said signed at cheaper rates in this higher
Speaker 7: priced environment. So that means many of the kind of
Speaker 7: major wind turbine makers have suffered a lot over the
Speaker 7: last couple of years, and so they they're maintaining higher
Speaker 7: prices to kind of have a bit of a buffer
Speaker 7: on their margin, trying to regain kind of stronger margins.
Speaker 7: But that means that developers are left paying higher prices
Speaker 7: for the turbines despite the fact that some of these
Speaker 7: input costs have started coming down.
Speaker 1: Who makes these big turbine things in the ocean.
Speaker 7: So that's companies like vestas Semens Energy GE is a
Speaker 7: big US player and so those are I recently spun out.
Speaker 7: I mean, so also it is one of the one
Speaker 7: of the companies that builds builds the project, so one
Speaker 7: of the biggest project developers globally. But there'll be the
Speaker 7: guys putting in the orders with your likes of vestors,
Speaker 7: g semen.
Speaker 1: I mean, how do you build these things? I mean
Speaker 1: how do you install them? I mean difficulty, it's tough,
Speaker 1: build them on land, ship them out there, then just
Speaker 1: plug them in the sand. I mean, how does this work?
Speaker 7: So most of what's getting built at the moment is
Speaker 7: bottom fixed off your wind. So you go out there,
Speaker 7: you build a foundation that's fixed to the seabed, and
Speaker 7: then you come out and you build the turbine on
Speaker 7: top of that. So you build up the tower and
Speaker 7: then component by component kind of build the big fan.
Speaker 8: You can see it at the top, I know.
Speaker 4: And then also how do you Then that question is
Speaker 4: like if something happens and it gets its broken, like
Speaker 4: how do you fix it?
Speaker 3: Like what's it like when you go off shore? I mean,
Speaker 3: what happens when one of these things dies? It just
Speaker 3: like what's the shelf life of a turbine? And how
Speaker 3: do you recycle it? I don't, we haven't, we don't
Speaker 3: know that yet.
Speaker 7: Yeah, Well, well, going to your question on what happens
Speaker 7: when it goes wrong or how you construct it. You
Speaker 7: need really specialized vessels to build these things, so they
Speaker 7: call them jack up vessels, So they're vessels that kind
Speaker 7: of have legs that they extend down into the seabed.
Speaker 7: Jacks up the vessels so it's sitting kind of above
Speaker 7: the water, so you've got a solid platform by which
Speaker 7: to install the components, or if something goes wrong, to
Speaker 7: send it out there, take off one of the components
Speaker 7: and replace it with a fixed one. But these are
Speaker 7: really specialized vessels. They cost a lot of money to build.
Speaker 7: Are estimates around three hundred to five hundred million dollars,
Speaker 7: and there's a shortage of these things globally at the moment,
Speaker 7: the kind of specialized vessels to install the foundations and
Speaker 7: then and then the turbines. So if you're a developer,
Speaker 7: you're struggling to find those slots where you can secure vessels.
Speaker 7: And if something goes wrong on a recently installed project
Speaker 7: with one of these big, big new turbines, then you
Speaker 7: might struggle to get a vessel to come in and
Speaker 7: do that do that replacement work.
Speaker 1: Our thanks to Oliver medkef BN, the f head of
Speaker 1: Wind Research.
Speaker 4: Coming up on the program a logo Why Dick's Sporting
Speaker 4: Goods raised it's outlook for the year even as athletic
Speaker 4: where companies struggle.
Speaker 1: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 1: depth research and data on two thousand companies and one
Speaker 1: hundred and thirty industries. You can access Bloomberg Intelligence to
Speaker 1: be a bi go on the terminal. I'm Paul Swinging
Speaker 1: and Alex Steel.
Speaker 4: And this is Bloomberg.
Speaker 2: You're listening to Bloomberg Intelligence with Alex Steel.
Speaker 1: And Paul Sweeney on Bloomberg Radio.
Speaker 3: We move next to retail.
Speaker 4: This week, dick Sporting Goods raised its outlook for the year,
Speaker 4: reported quarterly sales it's their past analyst expectations.
Speaker 1: This was due to strong demand for sports gear across categories,
Speaker 1: even as athletic, where companies struggle.
Speaker 4: Separately, the clothing retailer Abercrombie and Fitch also reported quarterly
Speaker 4: sales that beat analyst estimates. For more on all of this,
Speaker 4: we were joined by Lindsay Dutch Bloomberg Intelligence Consumer Hardlines, a
Speaker 4: senior analyst.
Speaker 1: We first asked A Lindsay why these companies are doing
Speaker 1: so well.
Speaker 11: I think when you think about the sporting goods, you know,
Speaker 11: they do have a higher income sort of consumer base
Speaker 11: and that definitely helps. They also sell sort of a
Speaker 11: premium product, especially if you think about their footwear line,
Speaker 11: and when we think about the consumer broadly, they are
Speaker 11: you know, making some trade.
Speaker 3: Offs, but people are still.
Speaker 11: Willing to spend for that premium product, whether it be
Speaker 11: in footwear or even if you're thinking about that apparel
Speaker 11: like Abercrombie.
Speaker 1: As you mentioned, how is there same store traffic? I
Speaker 1: know in the retail space, that's important, So how was
Speaker 1: it kind of in terms of the gross story traffic
Speaker 1: versus pricing?
Speaker 11: Right, So when you think about Dick's comp sales were
Speaker 11: up over five percent in the quarter. That was a
Speaker 11: surprise or really strong number. It was really driven by
Speaker 11: number of transactions and ticket price. So they're seeing more
Speaker 11: customers come in their door and those customers are spending
Speaker 11: more and again I think that is driven by sort
Speaker 11: of a broad assortment. If you're going in you're sort
Speaker 11: of playing a new sport or continuing with your active wear,
Speaker 11: like you're buying more things you know in that assortment
Speaker 11: that Dix carries for you.
Speaker 4: Really dumb question because you know I'm a big sports person.
Speaker 4: That's not true, but like, why can't you just go
Speaker 4: to like Target or Walmart for this stuff?
Speaker 11: I think when you think about f letics, you know,
Speaker 11: brands matter, performance matters, and I think, you know, when
Speaker 11: I think about Dix's a great entry point when you're
Speaker 11: starting or if your kids are starting a new sport.
Speaker 11: You know, I'm a runner. If my kid is trying baseball,
Speaker 11: I know nothing about baseball. I can go there and
Speaker 11: figure out what do I need? And I can also
Speaker 11: figure out, you know, where I want to be on
Speaker 11: the price spectrum.
Speaker 6: Right.
Speaker 11: They have their own brands, so you can get sort
Speaker 11: of a cheaper glove if you don't want that name
Speaker 11: brand glove, and you can kind of get everything that
Speaker 11: you need in one space. And I think that's where
Speaker 11: Dix really does stand out.
Speaker 1: How about inventories, How are they managing their inventories? Some
Speaker 1: folks kind of surprisingly do a materially better job than
Speaker 1: the others quarter to quarter.
Speaker 11: Right, So when you think about this sporting industry as
Speaker 11: a whole, it sounds like inventory is slightly better positioned
Speaker 11: than it was about a year ago. Dicks in particular
Speaker 11: seems very well positioned heading into the second quarter. Second
Speaker 11: quarter is also seasonally better for that company when we
Speaker 11: think about sort of the summer and like kind of
Speaker 11: getting back to school, like fall sports kind of thing,
Speaker 11: So inventory is in a better position. I think that's
Speaker 11: helping Dix. I also think Dix has done a really
Speaker 11: great job sort of scaling back promotions. They're not giving
Speaker 11: out the discounts that they were pre pandemic. They've really
Speaker 11: held a line on that and that has really helped
Speaker 11: them in terms of profitability. Also, their consumer knows what
Speaker 11: they're getting when they come there, so they're not just
Speaker 11: like waiting for that fifty percent off deal. They know
Speaker 11: when they go there, you know what brands might be
Speaker 11: on sale, and that if they don't want to pay
Speaker 11: full price for Nike, they might be able to get
Speaker 11: their private label brand.
Speaker 4: It was something similar with Abercrombie. Gross margin was sixty
Speaker 4: six point four percent. Those higher than estimates.
Speaker 3: Same deal.
Speaker 4: Like, they're rolling back promotions and they have the power
Speaker 4: with which to do that.
Speaker 3: How is that possible?
Speaker 4: Like I'm trying to distinguish what the macro read is
Speaker 4: when like all indications point to a.
Speaker 3: Discerning sol lowing consumer.
Speaker 4: Base that is much more cash strapped and sensitive with
Speaker 4: their wallet versus certain companies like Dick Sporting Goods or
Speaker 4: Abercrombie and Fitch that have the power to keep their margins.
Speaker 11: Yeah, it's so. I think sort of what happened is,
Speaker 11: you know, in the pandemic, when we saw a surge
Speaker 11: for in demand for a lot of these categories, sporting
Speaker 11: goods and like athletic wear being one of them. You know,
Speaker 11: these companies saw where their margins could go when demands
Speaker 11: spike like that, and I think a lot of them
Speaker 11: made a proactive decision that they would never go back
Speaker 11: to that level of promotion that they had done before
Speaker 11: in order to protect that profitability. Coming into twenty twenty four,
Speaker 11: just broadly in retail, you know, profitability margins are majorly
Speaker 11: in focus across the board because there is still pressure
Speaker 11: on sales and everyone is looking to see how are
Speaker 11: these companies managing margin, how are they managing costs? And
Speaker 11: Dix has stood out there. I would say it's easier
Speaker 11: for a company like Dix who has a higher income
Speaker 11: customer base, or anybody that sort of has an assortment
Speaker 11: that includes like a higher level premium type brand than
Speaker 11: the retailers that are really trying to compete on value,
Speaker 11: because if you have a value focused consumer and they
Speaker 11: are only looking for the lowest price or the best deal,
Speaker 11: it's very difficult to compete and you're going to have
Speaker 11: to go back to that promotional environment. So you're sort
Speaker 11: of seeing a split in strategy depending on what category
Speaker 11: you're in. You know what level of assortment you have,
Speaker 11: and you know whether you're going after that value customer
Speaker 11: or whether you kind of hold firm try to protect
Speaker 11: that margin and get that better sale, maybe more longevity
Speaker 11: with a better consumer over time.
Speaker 1: And for the retailers that you talk to in including Dix,
Speaker 1: is there are there any supply chain issues left or
Speaker 1: that is that all fixed?
Speaker 11: I guess I think in sporting goods we're not really
Speaker 11: seeing a lot of supply chain issues anymore. We've seen
Speaker 11: transportation costs start to come down actually in the second
Speaker 11: half of last year. Many retailers in the space are
Speaker 11: still benefiting from those lower costs again helping the margin
Speaker 11: this year, and that is where we're seeing some of
Speaker 11: the improvement on that profit line.
Speaker 5: All right.
Speaker 4: Thanks to Lindsay Dutch Bloomberg intelligence, consumer hardline senior analyst.
Speaker 1: Return now to Elon Musk and the ev giant Tesla.
Speaker 1: The company appears to be in disarray as its stock
Speaker 1: has been creatoring, sales have been weak, and some investors
Speaker 1: say it has a distracted leader.
Speaker 4: But what about some of the other companies that CEO
Speaker 4: Elon Musk runs, like X and SpaceX. This is the
Speaker 4: subject of a big Take piece this week titled Tesla's
Speaker 4: Slump Exposes Elon Musk's distractions across his empire.
Speaker 1: We were joined by one of the pieces co authors,
Speaker 1: Bloomberg Tech reporter Kurt Wagner. We first asked Kurt for
Speaker 1: more context on his story.
Speaker 12: A big part of what you know working for Elon
Speaker 12: is all about, is sort of working for Elon everywhere
Speaker 12: he needs you, right, So you might be employed technically
Speaker 12: by Tesla, but you might show up on you know,
Speaker 12: a SpaceX project or an X project. And I think,
Speaker 12: you know, not only are the people that he works
Speaker 12: with sort of hovering around and all these various roles,
Speaker 12: but I think his companies are becoming closer and closer together.
Speaker 12: And that's why it's so important that you know when
Speaker 12: Tesla is struggling, it has this trickle effect because that's
Speaker 12: where he gets his wealth to fund XAI, to to
Speaker 12: you know, deal with X, to deal with SpaceX, and so,
Speaker 12: you know, what we wanted to sort of do is
Speaker 12: show people that all of these different companies and all
Speaker 12: the people who work them are interconnected. And we try
Speaker 12: to do that with a pretty cool visual graphic that
Speaker 12: folks can see on the website.
Speaker 1: Kurt, what is the musconomy to find that?
Speaker 12: Yeah, it's a term that represents or reflects these six
Speaker 12: different businesses that he's running at any given time, and again,
Speaker 12: sort of this idea that they all work together. They
Speaker 12: they you know, in X's case, the data from X
Speaker 12: which used to be called Twitter, is now sort of
Speaker 12: powering XAI his startup.
Speaker 5: Right.
Speaker 12: The money from Tesla has historically been used to help
Speaker 12: fund SpaceX and his purchase of X. And again, you
Speaker 12: see the musconomy as this collection of businesses that Elon
Speaker 12: runs and how they are all intertwined with one another.
Speaker 3: Do the people in his orbit do they like this?
Speaker 3: Like that to me sounds terrible.
Speaker 4: Like I like predictability, which I know as funny as
Speaker 4: I work in news. I like predictability. I like to
Speaker 4: know what I'm doing. I do not want to be
Speaker 4: pulled in seventeen thousand directions. Do people in his orbit like.
Speaker 12: That, Well, I think the people at the very center
Speaker 12: of this universe, the people who are closest to Elon.
Speaker 12: Whether they like it or not, it's sort of a necessity, right,
Speaker 12: because that's what it takes to be close to that
Speaker 12: center of power. And so we've seen, for example, his
Speaker 12: business manager Jared Burchell shows up pretty much across all
Speaker 12: of these different companies. His lawyer Alex Spiro shows up
Speaker 12: across all of these companies. So if you want to
Speaker 12: be at the center of this universe, you have to
Speaker 12: be willing to go where Elon go. And as we know,
Speaker 12: he not only has these six companies, but he's doing
Speaker 12: a million other things as well. And so whether they
Speaker 12: like it or not, I'm not sure if it really matters,
Speaker 12: because that's just what it takes to work for Elon Musk.
Speaker 3: How do they all?
Speaker 4: How do all the businesses though intersect? Because from a
Speaker 4: broad look they don't. But then if you dive a
Speaker 4: little deeper like they do, like X, you can use
Speaker 4: all that stuff for large language models, for his AI
Speaker 4: stuff and the AI stuff goes into the car stuff,
Speaker 4: and the car stuff I guess goes into the rocket
Speaker 4: ship stuff.
Speaker 12: Yeah, I mean you kind of hit on it. Like
Speaker 12: the connective tissue between these companies can be somewhat small.
Speaker 12: In X's case, as you pointed out that data there
Speaker 12: is being used to train a chatbot called Grock within XAI.
Speaker 12: We know that, for example, the corporate plane, like small things,
Speaker 12: the corporate plane that Elon uses at Tesla's the same
Speaker 12: one that's used at SpaceX. We know that they share
Speaker 12: certain employees, so you know, I mentioned Jared Burchell, his
Speaker 12: business manager, Alex Biro, his lawyer. Like these are the
Speaker 12: types of connective things that bring these companies together. Is
Speaker 12: the people and and sort of you know, the smaller
Speaker 12: parts of their business that are intertwined. And I feel
Speaker 12: like Tesla is sort of the engine behind this whole thing.
Speaker 12: If Tesla is humming and doing well, it kind of
Speaker 12: enables everything else to grow too.
Speaker 1: How about Twitter? You bought that for forty four billion dollars.
Speaker 1: Kurt and a lot of analysts says the value of
Speaker 1: Twitter's declined dramatically as advertisers have fled. Is there any
Speaker 1: pushback from anybody or or folks just saying, hey, it
Speaker 1: was his money, he can do with it what he wants.
Speaker 12: Yeah, I mean, I do think it poses a challenge
Speaker 12: because of this distraction with Elon's time, right. I think,
Speaker 12: especially if you're a Tesla investor, you have to be
Speaker 12: scratching your head and saying, what are you doing? You know,
Speaker 12: why are you spending time on this money losing business
Speaker 12: when you could be sort of you know, making money
Speaker 12: for shareholders over here. And I think it's you know,
Speaker 12: becoming a bit of a problem. I think what will
Speaker 12: be interesting is to see whether X sort of gets
Speaker 12: folded into x AI at some point. I could see
Speaker 12: those two companies sort of merge so that you know,
Speaker 12: again X provides the data for these large language models,
Speaker 12: but it sort of gives him some cover to spend
Speaker 12: time in X because now it's part of the AI business,
Speaker 12: which is much more exciting, I think, for people than
Speaker 12: the free speech business, which hasn't been very lucrative for him.
Speaker 3: The free speech Businessho's in the free speech business? Like,
Speaker 3: what is that mental lawyers?
Speaker 12: That is Elon? Elon is the is in the free
Speaker 12: speech business.
Speaker 8: I guess.
Speaker 4: So in your reporting, what emerges the biggest problem or
Speaker 4: the biggest question.
Speaker 12: Yeah, I think really it comes down to kind of
Speaker 12: this we I haven't really talked much about this yet,
Speaker 12: but Elon's pay package at Tesla is sort of up
Speaker 12: for debate.
Speaker 5: Right.
Speaker 12: You may remember he was supposed to be paid I
Speaker 12: believe it was fifty six billion dollars and that pay
Speaker 12: package was I believe set up in twenty eighteen. It's
Speaker 12: been challenged in court and a judge basically said this
Speaker 12: isn't a fair you know, compensation, and Elon is fighting
Speaker 12: this in court. But it's a huge deal, not only
Speaker 12: because it's you know, his own net worth, but because
Speaker 12: that money is then used to fund many of these
Speaker 12: other projects. So if he's not able to secure this
Speaker 12: pay package that he thought he had, it impacts the
Speaker 12: loans that he takes out and impacts his liquidity to
Speaker 12: be able to use on these other companies. And I
Speaker 12: do wonder if he starts to lose a lot of
Speaker 12: his net worth, his value, if that's going to have
Speaker 12: an impact on XAI, Twitter, SpaceX and others.
Speaker 3: All Right, Thanks to Kurt Wagner, Bloomberg Tech Reporter.
Speaker 1: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio
Speaker 1: providing in depth research and data on two thousand companies
Speaker 1: and one hundred and thirty industries.
Speaker 4: And remember you can access Bloomberg Intelligence through Bigo on
Speaker 4: the terminal. I'm Alex Steel and.
Speaker 1: I'm Paul Sweeney.
Speaker 8: Stay with us.
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