WEBVTT - Oracle Shares Surge Most Since 1992 on Cloud Contract Wins 0:00:02.720 --> 0:00:10.600 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.600 --> 0:00:14.560 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.640 --> 0:00:18.560 Eastern on Applecarclay, and Android Auto with the Bloomberg Business App. 0:00:18.640 --> 0:00:21.920 Listen on demand wherever you get your podcasts, or watch 0:00:21.960 --> 0:00:23.080 us live on YouTube. 0:00:24.200 --> 0:00:27.360 Investors are partying like it's nineteen ninety nine. Investors an Oracle, 0:00:27.400 --> 0:00:30.120 that is. And that's because the last time the stock 0:00:30.200 --> 0:00:33.199 rally this much was nineteen ninety nine. Stocks up. As 0:00:33.240 --> 0:00:36.040 John just said, nearly. You weren't even a line back then, 0:00:36.120 --> 0:00:36.720 the two of you. 0:00:36.880 --> 0:00:41.040 Oh go on, we remember the dot com bubble days. 0:00:41.280 --> 0:00:43.920 So I want to bring in Annie Rograna, now Bloomberg 0:00:43.960 --> 0:00:46.880 Intelligence technology analyst. He was around in nineteen ninety nine, 0:00:47.280 --> 0:00:50.919 coming to us from our Chicago bureau. Okay, so we 0:00:51.040 --> 0:00:53.800 know that you know it was a blowout quarter AI 0:00:54.240 --> 0:00:56.520 just driving things there. But I want to talk a 0:00:56.520 --> 0:00:59.360 little bit about traditional software, which is what this company 0:00:59.400 --> 0:01:02.480 is all about, the fact that that's not really working 0:01:02.520 --> 0:01:05.200 at Oracle. But it doesn't seem like investors care today. 0:01:05.240 --> 0:01:08.520 On rug Yeah, so your Oracle is a very unique 0:01:08.560 --> 0:01:11.600 company because it has your traditional software, but also a 0:01:11.640 --> 0:01:14.880 few years ago it started a cloud business called Oracle 0:01:14.920 --> 0:01:18.520 Cloud Infrastructure, something very similar to what Aws tees or 0:01:18.560 --> 0:01:22.080 Microsoft Azure. And one of the advantages it has is 0:01:22.120 --> 0:01:24.680 it just rents out it's you know, servers for people 0:01:24.680 --> 0:01:27.760 to go out and train their AI models or you know, 0:01:27.840 --> 0:01:30.400 run their applications on it. So this is really a 0:01:30.480 --> 0:01:32.560 new business for them, you know, it just came up 0:01:32.560 --> 0:01:35.040 the last few years, and that's where the biggest growth 0:01:35.120 --> 0:01:36.480 is and that's what's driving the stock. 0:01:37.080 --> 0:01:39.679 That's what's driving the stock, and that's probably where Oracle 0:01:39.760 --> 0:01:42.760 is driving its spending as well. What's happening with the 0:01:42.800 --> 0:01:46.039 rest of the company, it's operations, its software business. Is 0:01:46.080 --> 0:01:49.440 it still cutting costs for instance, and reducing headcount? 0:01:50.600 --> 0:01:53.400 Yeah, I think you're absolutely right about it. So the 0:01:53.640 --> 0:01:56.200 advantage Oracle has compared to let's say a company like 0:01:56.240 --> 0:01:59.960 core v for Nebus, is that it has a very 0:02:00.160 --> 0:02:04.040 high margin database business and very high margin application business. 0:02:04.360 --> 0:02:07.080 These businesses have gross margins, you know, let's say, north 0:02:07.120 --> 0:02:10.080 of ninety percent. Now when you marry that with a 0:02:10.160 --> 0:02:13.120 massive AI infrastructure business where you need to spend a 0:02:13.120 --> 0:02:16.920 lot of money, that's problematic for somebody that doesn't have that. 0:02:17.120 --> 0:02:20.280 But Oracle has that luxury that it can spend billions 0:02:20.320 --> 0:02:23.160 of dollars. You know, before yesterday we were thinking they're 0:02:23.160 --> 0:02:25.480 going to spend you know, somewhere in the low thirty 0:02:25.520 --> 0:02:29.080 billion range, which was already higher than what they had guided. 0:02:29.160 --> 0:02:32.040 And you know, even the street was expecting. They came 0:02:32.120 --> 0:02:33.760 out and said they're going to spend over thirty five 0:02:33.760 --> 0:02:37.160 billion and you know the next financial year. So that's 0:02:37.200 --> 0:02:39.880 a lot of money going into expanding data center, buying 0:02:39.960 --> 0:02:43.120 chips by you know, creating a new infrastructure to fulfill 0:02:43.160 --> 0:02:43.640 this demand. 0:02:44.639 --> 0:02:46.960 Now, also we should note that a number of analysts 0:02:47.000 --> 0:02:50.680 are raising the price target on Oracle. TD Cowan caught 0:02:50.680 --> 0:02:53.600 my eye, raising the target to three hundred and seventy 0:02:53.600 --> 0:02:56.359 five dollars from three hundred and twenty five dollars a share. 0:02:56.639 --> 0:02:59.960 But when you look at the competition here, Microsoft, Amazon, 0:03:00.120 --> 0:03:04.280 on Alphabet, what does Oracle or how does Oracle differentiate 0:03:04.320 --> 0:03:08.880 itself not only for the customer the client, but for investors. 0:03:10.120 --> 0:03:11.680 Yeah, And one of the things I would say is 0:03:11.919 --> 0:03:14.440 everybody is having a good time in this particular party. 0:03:14.480 --> 0:03:16.919 It's not just you know, one company that's gaining it. 0:03:16.919 --> 0:03:19.560 It's just the size of their business is far smaller 0:03:19.600 --> 0:03:23.400 than it is for let's say AWS or Microsoft. You know, 0:03:23.800 --> 0:03:25.880 in the last financial year, the revenue was you know, 0:03:26.000 --> 0:03:29.040 roughly about ten billion or so. Aws's rund rate is 0:03:29.120 --> 0:03:32.280 one hundred and twenty five billion. Microsoft's business is seventy 0:03:32.280 --> 0:03:35.760 five billion. Google's business is fifty billion. So you know, please, 0:03:36.120 --> 0:03:37.960 you know, you've got to take that with the context 0:03:38.000 --> 0:03:40.880 of how big Oracle's cloud infrastructure is compared to some 0:03:40.920 --> 0:03:42.400 of the bigger vendors. 0:03:42.040 --> 0:03:44.960 Out there, you know, honorog it feels like Oracle kind 0:03:45.000 --> 0:03:48.280 of came from out of nowhere with its you know, 0:03:48.560 --> 0:03:52.560 contributions to the AI space and being such a big player. Certainly, 0:03:52.600 --> 0:03:55.960 the bookings of almost half a trillion dollars caught my 0:03:56.000 --> 0:03:57.680 eye on It's more than four times what it was 0:03:57.720 --> 0:04:00.240 the same time last year. Are there any other kind 0:04:00.240 --> 0:04:03.160 of dark horses out there that you would be keeping 0:04:03.160 --> 0:04:05.480 your eye on that could be the next Oracle, which 0:04:05.520 --> 0:04:07.320 is already feels like it's the next in VideA. 0:04:08.640 --> 0:04:10.040 Yeah, I think one of the things you have to 0:04:10.040 --> 0:04:11.840 think about it is it's not easy to come up 0:04:11.840 --> 0:04:14.760 with this structure or a business like this, because you 0:04:14.840 --> 0:04:17.359 need billions of dollars to create a data center or 0:04:17.360 --> 0:04:20.039 to lease out a data center then buy equipment like 0:04:20.080 --> 0:04:24.120 in Vidia chips and computing equipment. There are a handful 0:04:24.160 --> 0:04:26.920 of companies like you know, Core beav of Nebus, which 0:04:26.920 --> 0:04:30.520 are smaller neo cloud players that specialize in renting and 0:04:30.600 --> 0:04:34.279 VideA GPUs to customers. Now, the bigger vendors have the 0:04:34.320 --> 0:04:36.960 capital that they are also expanding it. But again, as 0:04:37.000 --> 0:04:39.240 I said, given the size of the increment that they 0:04:39.240 --> 0:04:41.760 are seeing, you know, you're not getting that same growth rate. 0:04:42.560 --> 0:04:44.640 Do you think there's a little over exuberance though in 0:04:44.680 --> 0:04:48.200 the market today with Oracle stock up nearly forty percent, 0:04:48.360 --> 0:04:51.279 especially with so much talk about whether or not we 0:04:51.440 --> 0:04:54.120 are in an AI bubble and what happens if it 0:04:54.160 --> 0:04:55.000 starts to deflate. 0:04:56.240 --> 0:04:56.440 Yeah. 0:04:56.520 --> 0:04:58.120 See, one of the things you have to remember is 0:04:58.160 --> 0:05:01.080 for Oracle, at least they have this backlock of autos 0:05:01.120 --> 0:05:03.760 coming in and it's coming you know. For example, one 0:05:03.800 --> 0:05:06.640 of the biggest customers right now is OPENINGI If Opening 0:05:06.640 --> 0:05:09.680 Eye continues to expand revenue at a good pace over 0:05:09.720 --> 0:05:12.000 the next several years, they are going to be spending 0:05:12.400 --> 0:05:14.719 a lot of money to train their models in order 0:05:14.760 --> 0:05:15.479 to stay ahead. 0:05:15.640 --> 0:05:17.880 So I think there is a lot of relationship over there. 0:05:18.000 --> 0:05:20.279 If let's say you and I don't use chat GPT 0:05:20.400 --> 0:05:24.240 as much, that would have an impact on opening Ay's revenue. 0:05:24.279 --> 0:05:27.320 That would have impact downstream revenue on all the other players, 0:05:27.520 --> 0:05:28.960 you know, whether that's in video oticle. 0:05:29.120 --> 0:05:32.159 But frankly speaking, we are not there yet, you know. 0:05:32.600 --> 0:05:34.680 I'm looking at the mag seven members and how they're 0:05:34.680 --> 0:05:38.200 performing today. In video is up almost five percent, Amazon 0:05:38.320 --> 0:05:41.120 down one point nine percent, Alphabet which is the parent 0:05:41.160 --> 0:05:44.080 of Google up marginally up one point zero point one percent, 0:05:44.080 --> 0:05:45.880 and Microsoft getting six tens of one percent. 0:05:46.520 --> 0:05:48.719 It doesn't feel like this is a situation. 0:05:48.360 --> 0:05:51.400 Where it's a zero sum game Oracle wins and Microsoft, 0:05:51.720 --> 0:05:55.560 Google and Amazon lose, or is it no? 0:05:55.720 --> 0:05:58.279 So there are a few companies that fall into this pocket, 0:05:58.400 --> 0:06:03.559 you know, and those include Amazon Web Services, Microsoft. 0:06:03.320 --> 0:06:06.760 Google Cloud Code, viv Oracle. 0:06:06.520 --> 0:06:08.680 And Mhibius for example. So these are the ones that 0:06:08.720 --> 0:06:11.160 are seeing extra spending right now. But when you look 0:06:11.200 --> 0:06:13.680 at on the application side, you know, whether that salesforce 0:06:13.760 --> 0:06:16.320 or workday, those guys are not seeing that benefit because 0:06:16.320 --> 0:06:18.800 they're not in that infrastructure game. So there's a huge 0:06:18.800 --> 0:06:21.800 difference between the two vendors, or between the two category 0:06:21.800 --> 0:06:24.240 of vendors, right now we are more in the built 0:06:24.240 --> 0:06:27.240 phase of AI, not the implementation phase of AI. 0:06:27.800 --> 0:06:32.400 You know, it's hard to believe, Scarlet, but this stock 0:06:32.760 --> 0:06:36.240 and is now worth more than has a larger market 0:06:36.279 --> 0:06:40.679 cap than Walmart, Eli, Lilly, JP, Morgan Chase. 0:06:41.120 --> 0:06:43.159 Yeah, that is pretty remarkable. And again it feels like 0:06:43.160 --> 0:06:44.640 it kind of came from out of nowhere. 0:06:44.720 --> 0:06:46.800 You're right on that very recently, which is why I 0:06:46.800 --> 0:06:49.240 brought up you know, Amazon, Microsoft, right on your rog 0:06:49.279 --> 0:06:51.160 I mean, the fact that those were the names we 0:06:51.160 --> 0:06:53.919 were really talking about when it came to AI, and 0:06:53.960 --> 0:06:56.320 then sort of Oracle comes out of out of the blue. 0:06:57.560 --> 0:07:00.720 Yeah, but that's the whole point. This particular infrastructure. If 0:07:00.720 --> 0:07:03.560 you're going to run large models, it's very unlikely you 0:07:03.600 --> 0:07:05.240 can do it in house. I mean, you can do it, 0:07:05.279 --> 0:07:07.680 but you require a lot of investment going in. You're 0:07:07.720 --> 0:07:11.960 better off renting out data center capacity or computing capacity 0:07:12.040 --> 0:07:14.840 from one of the cloud vendors. And Oracle has the 0:07:14.880 --> 0:07:17.280 money to spend it, and they have the relationship with 0:07:17.400 --> 0:07:20.080 Nvidia to get those GPUs, And on top of that, 0:07:20.080 --> 0:07:23.720 they're offering this to customers and saying here's my equipment, 0:07:23.840 --> 0:07:26.480 come and test it out the way you like it. Amazon, 0:07:26.520 --> 0:07:29.240 on the other hand, for example, sells it as a 0:07:29.280 --> 0:07:32.200 package and that's where you're not. You're seeing some distinction 0:07:32.320 --> 0:07:34.040 and also the size. As I mentioned before. 0:07:34.720 --> 0:07:37.600 Stay with us. More from Bloomberg Intelligence coming up after this. 0:07:41.360 --> 0:07:45.040 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:07:45.120 --> 0:07:48.239 weekdays at ten am Eastern on Apple Coarclay, and Android 0:07:48.240 --> 0:07:51.560 Auto with the Bloomberg Business app. Listen on demand wherever 0:07:51.600 --> 0:07:55.160 you get your podcasts, or watch us live on YouTube. 0:07:56.000 --> 0:08:00.000 We're keeping an eye on Novo Nordisk, the drug maker. 0:08:00.160 --> 0:08:04.160 Remember they are the company behind Ozembic and Mogovi has 0:08:04.200 --> 0:08:07.640 decided to cut nine thousand jobs and also cut its 0:08:07.880 --> 0:08:09.080 profit forecasts as well. 0:08:09.120 --> 0:08:10.440 So let's bring in Sam Fazzelli. 0:08:10.520 --> 0:08:13.760 He is Bloomberg Intelligence, Director of Research for Global Industries 0:08:13.800 --> 0:08:16.520 and Senior Pharmaceuticals, our go to guy for all things 0:08:16.560 --> 0:08:21.000 on global drug makers, and Sam for Novo Nordisk. This 0:08:21.160 --> 0:08:24.120 is part of a broader restructuring that the new CEO 0:08:24.200 --> 0:08:25.880 is undertaking. Can you tell us a little bit more 0:08:25.880 --> 0:08:27.360 about the changes taking place? 0:08:28.600 --> 0:08:30.840 Yeah? Sure, and very nice to see you again. All. 0:08:31.160 --> 0:08:33.920 So, the story here is that this is not the 0:08:33.960 --> 0:08:36.360 first time they've lowered guidance for the year. I mean 0:08:36.400 --> 0:08:39.040 this time there's an impact on the EPs front from 0:08:39.080 --> 0:08:42.520 obviously the cost of restructuring, assuming they can get it 0:08:42.559 --> 0:08:44.840 all done this year, but it's a pretty chunky one 0:08:44.920 --> 0:08:47.400 nine thousand people, about eleven percent of the workforce, and 0:08:47.440 --> 0:08:50.640 a lot of that coming from Denmark. If you read 0:08:50.679 --> 0:08:53.080 the essence of the press release that they put at 0:08:53.080 --> 0:08:54.320 there's a couple of things that they bring out. 0:08:54.320 --> 0:08:55.640 They want to invest more on R and D. 0:08:56.280 --> 0:08:58.640 Well, what I think this is telling you is that 0:08:58.679 --> 0:09:01.600 the growth that they have planned for the next five years, 0:09:01.880 --> 0:09:04.000 they may be thinking maybe that won't come as test 0:09:04.040 --> 0:09:07.160 as we were expecting it because of competition from Lily, 0:09:07.679 --> 0:09:11.080 compounders and other products potentially coming to market to the 0:09:11.120 --> 0:09:12.800 pace that they were hoping. So if you want to 0:09:12.880 --> 0:09:14.600 keep investing in R and D, you need to liberate 0:09:14.640 --> 0:09:17.560 some cash. And also it looks like that they're also 0:09:17.600 --> 0:09:20.240 thinking about changing the way that they're doing their marketing 0:09:20.679 --> 0:09:23.000 because of the different channels that they're getting involved with 0:09:23.320 --> 0:09:26.000 direct to consumer. That is not something that FORUMA has 0:09:26.040 --> 0:09:28.600 done very often before. In fact, only Lily had done 0:09:28.600 --> 0:09:32.160 it prior to this, also for obesity drugs. So maybe 0:09:32.160 --> 0:09:34.320 the costs of that are different, and there's an element 0:09:34.320 --> 0:09:37.319 that that they've referred to in there, which is a 0:09:37.320 --> 0:09:44.439 culture of performance related reward, and you think to yourself, well, 0:09:44.480 --> 0:09:48.000 what was it before? So it seems like that they 0:09:48.040 --> 0:09:50.880 want to make it much harder. Focus on you've got 0:09:50.880 --> 0:09:53.200 to deliver because we need the growth. So that's the 0:09:53.240 --> 0:09:55.079 interesting wle to watch, you. 0:09:55.000 --> 0:09:57.400 Know, Sam, I think to a lot of casual investors 0:09:57.440 --> 0:10:01.040 who don't deep dive into you know, Novo Nordisk the 0:10:01.040 --> 0:10:03.720 way you might say, would look at this and say, listen, 0:10:03.720 --> 0:10:06.559 they have the most popular weight loss drugs, right, will 0:10:06.559 --> 0:10:09.959 go vi o Zembek. Why is this company having these 0:10:10.000 --> 0:10:13.960 problems when you drill down or is it just a 0:10:14.040 --> 0:10:17.040 problem with having to scale too quickly? Is it that 0:10:17.080 --> 0:10:20.800 the company isn't nimble enough to sort of change with 0:10:20.880 --> 0:10:21.720 the times. 0:10:22.640 --> 0:10:25.920 Well, Novodordis has been a poster child of how you 0:10:25.920 --> 0:10:30.240 grow from a small company selling to a relatively basic 0:10:30.280 --> 0:10:33.520 set of products twenty thirty years ago to one that's 0:10:33.559 --> 0:10:36.520 become essentially one of the innovators in the space. They 0:10:36.600 --> 0:10:38.640 brought the first jil we want to market, so we 0:10:38.720 --> 0:10:41.360 can't hold them for that. It's just that I think 0:10:41.360 --> 0:10:44.040 this growth that they had to go through where the 0:10:44.240 --> 0:10:46.040 planning was done, you know a lot of I mean, 0:10:46.080 --> 0:10:48.960 we have one hundred billion dollar market potential for or 0:10:48.960 --> 0:10:53.480 obesity as a whole, right, so it's just difficult, I think, 0:10:53.520 --> 0:10:56.280 to judge into this space. And maybe the previous CEO 0:10:56.320 --> 0:10:58.600 had looked and said, I'm pretty sure we're going to 0:10:58.600 --> 0:11:00.880 be fifty percent of that market. We need to plan 0:11:00.960 --> 0:11:05.000 for that growth. And then two things changed. Competition from 0:11:05.040 --> 0:11:08.000 really is superintense. They have what I would call it 0:11:08.040 --> 0:11:10.440 a better drug in terms of the efficacy profile that's 0:11:10.480 --> 0:11:13.640 been shown in head to A trials. And then of 0:11:13.679 --> 0:11:16.160 course you've got on top of that, compounders that don't 0:11:16.200 --> 0:11:19.440 seem to be don't seem to be going away. They 0:11:19.520 --> 0:11:23.240 keep taking cheaper generics or generics manufactured. They'll try and 0:11:23.280 --> 0:11:27.000 making the drugs. So that's where I think the new 0:11:27.080 --> 0:11:30.560 Area issue is in that we all expected the FDA 0:11:30.640 --> 0:11:32.959 to really clamp hard down on that and they haven't 0:11:34.720 --> 0:11:37.880 made issues, you know, statements, but they're allowing them. They 0:11:37.960 --> 0:11:41.920 even found areas outside the US where these compound compounders 0:11:41.960 --> 0:11:42.439 can get their. 0:11:42.440 --> 0:11:46.080 Drugs from, which is counterintuitive. So those are the issues. 0:11:46.280 --> 0:11:50.319 Yeah, So it feels like NOVA Nordics gave up its 0:11:50.360 --> 0:11:53.920 first mover advantage, but has it lost its lead completely 0:11:54.000 --> 0:11:56.920 in the US obsity market to Elila Lee permanently or 0:11:56.960 --> 0:11:59.840 is this still very much a wide open contest. 0:12:00.800 --> 0:12:03.000 No, I mean we have I can't remember what the 0:12:03.080 --> 0:12:05.520 latest number is in terms of what percentage of people 0:12:05.520 --> 0:12:08.320 who would benefit for these from these drugs who should 0:12:08.320 --> 0:12:10.800 be able to get them around it. But it's not 0:12:10.960 --> 0:12:13.240 in the big percentages. I'm pretty sure it's in the 0:12:13.280 --> 0:12:15.800 single digit percentages. So there's a lot of room to 0:12:15.840 --> 0:12:18.520 play for. I think our estimate, and I hope I'm 0:12:18.559 --> 0:12:20.640 not completely off on this, was about one hundred and 0:12:20.679 --> 0:12:22.920 eighty nine million people could be in these drugs by 0:12:22.920 --> 0:12:26.480 twenty thirty. That's enormous. There's lots of other people coming 0:12:26.520 --> 0:12:29.040 with orals with other things. It's not a matter of 0:12:29.080 --> 0:12:34.199 having lost the lead. Yes, really surprised. Within slightly different mechanism, 0:12:34.760 --> 0:12:37.400 it's still the same but with a better drug. There's 0:12:37.440 --> 0:12:40.440 still room for innovation here, which is what the company's saying. 0:12:40.640 --> 0:12:43.960 We need to save to keep investing in that innovation. 0:12:44.160 --> 0:12:46.600 So that's the area I think that they're highly focused on. 0:12:46.600 --> 0:12:50.120 That Stay with us. More from Bloomberg Intelligence coming up 0:12:50.160 --> 0:12:50.560 after this. 0:12:54.400 --> 0:12:58.080 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:12:58.160 --> 0:13:01.559 weekdays at ten am Eastern Apple Coarclay and Android Auto 0:13:01.679 --> 0:13:04.720 with the Bloomberg Business App. Listen on demand wherever you 0:13:04.760 --> 0:13:07.760 get your podcasts, or watch us live on YouTube. 0:13:09.240 --> 0:13:11.640 It's a tough day for investors and Synopsis or the 0:13:11.679 --> 0:13:14.920 chip design software provider missed Wall Street's estimates, hurt by 0:13:14.960 --> 0:13:18.400 weakness and its design IP business. I want to bring 0:13:18.440 --> 0:13:22.200 in naraje Ptel, now Bloomberg Intelligence senior software analyst, for 0:13:22.360 --> 0:13:26.480 more on this. So give us the larger story behind 0:13:26.520 --> 0:13:31.520 this disappointment. I think is an easy word to use 0:13:31.559 --> 0:13:33.199 for this. I mean, I don't know. I feel like contostors. 0:13:33.320 --> 0:13:35.960 Yeah right, all right, Narage, what's your take? 0:13:36.960 --> 0:13:40.240 Yeah, this is a major shock to the investor community, 0:13:40.280 --> 0:13:42.240 and I think you see it in the stock price. 0:13:42.880 --> 0:13:47.200 Specifically the company's design IP business that's about thirty percent 0:13:47.200 --> 0:13:51.800 of sales. It has been growing fifteen percent annually and 0:13:51.880 --> 0:13:57.120 their leader in a subcategory called interface IP. This business 0:13:57.160 --> 0:14:00.880 now is going flat. It was tracking to fifteen percent 0:14:00.920 --> 0:14:04.319 growth as of two Q and the remaining two quarters 0:14:04.679 --> 0:14:08.160 are big shock. This quarter was down nine percent. Next 0:14:08.200 --> 0:14:11.360 quarter it's going to be down some more. And this 0:14:11.520 --> 0:14:14.600 catalyst came out of the blue, I would say for 0:14:14.760 --> 0:14:18.000 a lot of the investor community because design IP has 0:14:18.040 --> 0:14:23.200 a lot of tailwinds related to AI complex chip design 0:14:23.480 --> 0:14:27.160 as well as all this advanced architecture that the semiconductor 0:14:27.200 --> 0:14:30.560 design companies like in video, Broadcom, Intel are pursuing. 0:14:31.720 --> 0:14:35.080 So can we blame or can the company blame factors 0:14:35.080 --> 0:14:37.240 beyond its control and here and referring of course to 0:14:37.880 --> 0:14:40.760 trade war tariffs for that or is this something that 0:14:40.920 --> 0:14:42.720 Synopsis just wasn't prepared for. 0:14:44.720 --> 0:14:47.360 Yeah, there's a lot of interesting points there, Scarlett, and 0:14:47.400 --> 0:14:51.280 I think when we're looking at trade war, yes, a 0:14:51.320 --> 0:14:55.000 little bit of an issue. And the China Eda band 0:14:55.040 --> 0:14:58.800 that initiated end of May that lasted about six weeks, 0:14:58.840 --> 0:15:01.960 that was introduced by the Bureau of Industry and Security 0:15:02.000 --> 0:15:07.200 in the US. But their major peer cadence and competitor, 0:15:07.280 --> 0:15:11.040 which is second in market share, they reported several weeks 0:15:11.040 --> 0:15:15.080 ago they had the same macro issues and they actually 0:15:15.120 --> 0:15:17.600 tuned up their guidance. So this may be a little 0:15:17.640 --> 0:15:22.200 more company specific than macro factors. And I think what's 0:15:22.360 --> 0:15:25.960 hinting us that they made big investments to catch up 0:15:26.000 --> 0:15:30.880 Intel foundry relative to some of the other competing founderies 0:15:31.320 --> 0:15:35.440 with their IP and this hasn't returned any type of 0:15:36.000 --> 0:15:39.240 scale on the revenue side for them, and this reality 0:15:39.360 --> 0:15:42.200 really hit them this quarter and for the next several quarters. 0:15:42.760 --> 0:15:46.240 So did the CEO Gazi say anything on that post 0:15:46.280 --> 0:15:50.080 earnings call to give investors a little light at the 0:15:50.160 --> 0:15:52.200 end of the tunnel here an indication of how they're 0:15:52.200 --> 0:15:54.040 going to turn things around at Synopsis. 0:15:56.400 --> 0:15:58.320 Yeah, I think it was a little marky in terms 0:15:58.360 --> 0:16:02.040 of the numbers to make a deal with Ansis that 0:16:02.120 --> 0:16:05.680 was about thirty five million dollars in mid July. This 0:16:05.720 --> 0:16:09.280 should have added about six hundred million in total revenue, 0:16:09.320 --> 0:16:12.120 So the numbers didn't add up to their guidance of 0:16:12.280 --> 0:16:15.600 seven billion. So a little light in terms of adding 0:16:15.720 --> 0:16:19.200 this acquisition that closed. So that's going to be a 0:16:19.200 --> 0:16:21.440 little bit of a digestion period, we think, and it's 0:16:21.440 --> 0:16:24.240 going to take several quarters for the investor community to 0:16:24.360 --> 0:16:27.640 settle in. And I think, you know, we're facing this 0:16:27.800 --> 0:16:30.880 issue where they have a lot of AI related tailwinds. 0:16:30.880 --> 0:16:34.040 You're building more complicated chips, you're using a lot more 0:16:34.120 --> 0:16:38.000 interface IP for these chips, and they're the market leader 0:16:38.000 --> 0:16:41.800 in this market, so things aren't adding up. I guess 0:16:41.840 --> 0:16:43.960 when we look at, you know, the story and the 0:16:44.040 --> 0:16:47.400 narrative that they've communicated over the last several quarters, the 0:16:47.600 --> 0:16:51.480 AI story that we're hearing from Nvidia and Broadcom, and 0:16:51.560 --> 0:16:56.720 some of the investments that are occurring across the ecosystem. 0:16:55.880 --> 0:16:58.640 So very quickly here is there any bright Is there 0:16:58.720 --> 0:17:01.200 any good news in this reported anything to hang your 0:17:01.200 --> 0:17:03.240 hat on if you are a long term investor and 0:17:03.240 --> 0:17:04.280 you don't want to give up yet. 0:17:05.920 --> 0:17:09.400 Yeah, I think this space is an oligopoly Cadence and Synopsis. 0:17:09.440 --> 0:17:13.600 There's no new entrants, competitive pricesure pressure is very low, 0:17:13.640 --> 0:17:17.280 there's no substitute for technology. You have to use their 0:17:17.320 --> 0:17:21.080 tools to design chips, and the more advanced the chips get, 0:17:21.320 --> 0:17:23.879 the more features you introduce. You introduce a lot of 0:17:24.000 --> 0:17:26.960 verification and sign off steps to make sure all the 0:17:27.000 --> 0:17:30.760 electrical characteristics are working. You're not generating too much heat. 0:17:31.000 --> 0:17:34.720 You have mechanical structures, so you have to use their IP. 0:17:35.000 --> 0:17:38.760 You have to use their EDA Electronic Design Automation tools. 0:17:39.400 --> 0:17:43.040 They're thirty five percent share. Cadence is at thirty two 0:17:43.080 --> 0:17:46.360 percent share, and you have Siemen said about sixteen percent. 0:17:46.840 --> 0:17:49.320 So you don't have a lot of alternatives here, and 0:17:49.400 --> 0:17:52.880 once you build on any of these platforms, it's very 0:17:52.880 --> 0:17:56.560 hard to switch because your engineers are used to the 0:17:56.640 --> 0:17:59.159 type of data and the type of tool sets and 0:17:59.200 --> 0:18:01.200 the type of bugs that they produce and go through 0:18:01.240 --> 0:18:01.880 their workflow. 0:18:02.280 --> 0:18:05.200 Stay with us. More from Bloomberg Intelligence coming up after this. 0:18:08.960 --> 0:18:12.640 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:18:12.720 --> 0:18:13.760 weekdays at ten am. 0:18:13.840 --> 0:18:14.439 He's done on. 0:18:14.520 --> 0:18:17.760 Apple, Coarclay, and Android Auto with the Bloomberg Business App. 0:18:17.840 --> 0:18:21.119 Listen on demand wherever you get your podcasts, or watch 0:18:21.160 --> 0:18:22.320 us live on YouTube. 0:18:23.160 --> 0:18:24.919 I am taking a look at Chewy right now, the 0:18:25.000 --> 0:18:28.720 online pets supply retailer, taking it on the chin today. 0:18:28.760 --> 0:18:32.080 Profit falling in its fiscal second quarter, and that's despite 0:18:32.080 --> 0:18:36.240 an uptick in sales. The company did add more customers 0:18:36.280 --> 0:18:38.960 last quarter. Let's break this down though, with Diana rosserro 0:18:39.119 --> 0:18:44.000 Penya Bloomberg Intelligence as consumer staples analyst. So, Diana tell me, 0:18:44.119 --> 0:18:49.200 I mean this looks like a mixed quarterly report from Chewy. 0:18:49.359 --> 0:18:51.760 What has gotten investors so hot and bothered here? 0:18:52.240 --> 0:18:58.040 Yes, I think what investors were trying to see in 0:18:58.119 --> 0:19:01.080 this report was that there was an inflection point in 0:19:01.119 --> 0:19:04.760 the industry, and I don't necessarily think that they have 0:19:04.880 --> 0:19:06.120 founded in this report. 0:19:06.800 --> 0:19:09.200 Sales was higher than. 0:19:09.119 --> 0:19:15.800 The company the investors expected, but margin guidance ebidult guidance 0:19:16.000 --> 0:19:18.959 was kept and that was, you know, a little bit 0:19:18.960 --> 0:19:22.639 of any you know, bad news for the company and 0:19:22.680 --> 0:19:23.640 the industry as at a whole. 0:19:24.640 --> 0:19:27.680 Talk to me about innovating in this industry, because I 0:19:27.680 --> 0:19:30.520 would think that if you just stop innovating, that's when 0:19:30.560 --> 0:19:33.679 you start to have the problems. Is that starting to 0:19:33.720 --> 0:19:35.720 happen with Chewi. I mean, it is a leader in 0:19:35.760 --> 0:19:38.560 this space, but does it need to still be one 0:19:38.560 --> 0:19:40.560 step ahead of the curve and innovate here? 0:19:41.240 --> 0:19:43.959 Well, yes, and I think that is one of the 0:19:43.960 --> 0:19:47.640 things that they were trying to communicate during their earnings call. 0:19:47.760 --> 0:19:51.560 They are actually investing and that is going to probably 0:19:51.680 --> 0:19:55.960 offset some margin momentum going forward at least the second 0:19:56.040 --> 0:20:02.760 half of the year. They have led of offices now in 0:20:02.920 --> 0:20:03.640 four states. 0:20:04.080 --> 0:20:05.640 I've seen that, Yes, exactly. 0:20:05.720 --> 0:20:10.600 They actually launched Chewy Plus, which is a membership program 0:20:10.640 --> 0:20:14.879 and apparently has been very successful. And also they have 0:20:15.080 --> 0:20:19.480 launched private brands with get Real, which is a fresh 0:20:19.520 --> 0:20:22.680 frozen dog food brand. 0:20:23.000 --> 0:20:25.800 So the company also added a pretty decent amount of 0:20:25.880 --> 0:20:29.720 active customers, right one hundred and fifty thousand on a 0:20:29.720 --> 0:20:33.160 sequential basis. So now it's total customer base is nearly 0:20:33.240 --> 0:20:37.119 twenty one million. How much more room is there do 0:20:37.160 --> 0:20:40.360 you think to grow because we know people will spend 0:20:40.400 --> 0:20:41.560 big on their pets. 0:20:41.880 --> 0:20:45.840 Yes, and what we're seeing is probably gonna see a 0:20:45.920 --> 0:20:50.639 greater contribution on the pricing side compared to the customer base. 0:20:51.480 --> 0:20:56.080 And that again, that's another reason. While they did show 0:20:56.160 --> 0:20:59.800 positive momentum on customer base, it was still you know, 0:21:00.119 --> 0:21:03.800 in the mid single sit digits, which is not necessarily 0:21:04.000 --> 0:21:07.399 significant growth or growth that they had seen before. So 0:21:08.640 --> 0:21:12.399