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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Prisner. The

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Speaker 2: tone in Asian equity trading is being influenced by continued

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Speaker 2: weakness in US chip stocks, as well as some Megacap

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Speaker 2: earnings that were reported after the bell. Now, the Philadelphia

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Speaker 2: Semiconductor Index was down for a fifth straight session, dropping

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Speaker 2: five point three percent, and in the last five trading days,

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Speaker 2: the socks is down nearly sixteen percent. Now regarding those

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Speaker 2: earnings after the bell, Meta gave a disappointing outlook for

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Speaker 2: revenue in the current quarter, and Microsoft reported results for

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Speaker 2: the latest quarter that were above forecast. For a closer

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Speaker 2: look at some of the market action, I'm joined by

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Speaker 2: ms Wong. He is one of the chief analysts at

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Speaker 2: Counterpoint Research and he joins us from San Francisco. Thank

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Speaker 2: you for being here. Let me begin with the chip makers.

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Speaker 2: I want to get your take. Obviously, there's been a

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Speaker 2: lot of weakness lately. I just referenced the pullback that

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Speaker 2: we have seen in the Philadelphia Semiconductor Index. What's your

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Speaker 2: sense of what's been happening with the chip stocks lately.

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Speaker 3: We can separate the two things at the same time,

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Speaker 3: one is a sustainability of the capital spending from the hyperscalers.

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Speaker 3: The other one is the so called the chifflation the

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Speaker 3: price elasticity in demand because memory pricing has been, as

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Speaker 3: you pointed out, very high up in the sky and

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Speaker 3: people are concerning whether this is going to weakening demand

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Speaker 3: profile going forward. So basically same thing. The hyperscalers may

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Speaker 3: weaken its capital spending based on lots of macro effects

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Speaker 3: and the revenue growth for example, but at the same

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Speaker 3: time people are concerning that too much high pricing in

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Speaker 3: the memory is going to destroy the demand, which is

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Speaker 3: what we are seeing in the smilephone market that everyone

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Speaker 3: needs to raise either pricing or pull back their production

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Speaker 3: because of the cost issue. So those are two factors

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Speaker 3: making a bit more concern in the market. So that

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Speaker 3: has been one of the reasons why dragging on top

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Speaker 3: of it, there are China factors that one of its

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Speaker 3: competitives listed in China market and they are coming with

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Speaker 3: the own tools as well. So those all together is

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Speaker 3: making a negative sentiment and profit taking action in the market,

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Speaker 3: I believe.

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Speaker 2: So you're speaking, I think of CXMT, which we can

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Speaker 2: talk about in the moment. This is the Chinese Emperor

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Speaker 2: chip maker. Yes, I just had an IPO recently, and

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Speaker 2: I'm glad you referred to the smartphone makers because Qualcom

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Speaker 2: was also reporting earnings for the latest quarter after the

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Speaker 2: bell in the US on Wednesday, and we know this

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Speaker 2: company is the largest maker of those smartphone processors. The

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Speaker 2: forecast for profit in the current quarter I think was

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Speaker 2: a little troublesome. It seems to be weak, and it

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Speaker 2: kind of goes to the point that you made about

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Speaker 2: component shortages and rising costs taking a toll on the

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Speaker 2: smartphone business. But I'm also curious to get your take

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Speaker 2: on what we've been hearing coming out of South Korea.

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Speaker 2: We had the sk Heinex numbers five hundred and fifty

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Speaker 2: seven percent increase in operating profit. That sounds stunning. And

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Speaker 2: at the same time, sk Heinez earmarked record capex for

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Speaker 2: the year of at least thirty one billion dollars. So

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Speaker 2: obviously a company like this, which is one of the

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Speaker 2: leaders in high bandwidth memory production, sees the market continuing

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Speaker 2: to expand, that demand for these memory chips will continue

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Speaker 2: far into the future. Maybe it's into twenty twenty eight,

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Speaker 2: but you I sense a little dubious that the market

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Speaker 2: is going to hold up. What's your what's your rationale?

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Speaker 3: I believe the stock market is always kind of a

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Speaker 3: racing game relative to the expectation. We all know that

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Speaker 3: AI demand is a strong, We all know that Skihiinix

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Speaker 3: earnings is going to fly out. But these days, these

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Speaker 3: are suppliers are locking up their supply into a long

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Speaker 3: term agreement three to five year deal, and at the

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Speaker 3: same time there is going to be a certain level

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Speaker 3: of a fixed pricing for the longer term. So nowadays

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Speaker 3: the pricing in memory market is going up every day

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Speaker 3: every month. It's for example, second quarter pricing gone up

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Speaker 3: like an eighty. So if one company is settled down

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Speaker 3: in a long term contract a little bit earlier, then

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Speaker 3: they're going to miss out all the values during the quarter.

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Speaker 3: I believe those timing issue is making a bit of

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Speaker 3: below consensus estimate earnings in the second quarter, and on

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Speaker 3: top of it, there are many issues that we talk about.

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Speaker 3: It's going to have a negative impact. So initial response

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Speaker 3: on the share price, despite all these good earnings and

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Speaker 3: the outlook, share price reaction was quite negative.

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Speaker 2: So I'm just now as we're speaking, getting the earnings

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Speaker 2: for the second quarter from Samsung better than expected at

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Speaker 2: seventy one point two seven trillion Korean one. This is

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Speaker 2: for Q two. Now we know that the memory chip

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Speaker 2: manufacturing industry is pretty concentrated. There is Samsung and s

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Speaker 2: K Heinez in South Korea. In the US, we have

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Speaker 2: Micron Technology, and now we have a company in China, CXMT.

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Speaker 2: Can you imagine a world where XMT starts to export

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Speaker 2: chips not just manufactured for the Chinese market, but something

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Speaker 2: that would have kind of a global impact.

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Speaker 3: Of course, I believe that the meaning of the IPO

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Speaker 3: of CXMT is not only that CXMT is making chips

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Speaker 3: for local market, but the real meaning of the IPO

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Speaker 3: is that it is already a fulld global supplier. We

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Speaker 3: can't really name who is a supplier because there are

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Speaker 3: already multiple customers are locking in the supply of the

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Speaker 3: CXM chips, not only the Chinese OEMs, but also global

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Speaker 3: OEMs as well, or some more people, More and more

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Speaker 3: companies are ready to secure the procurement because we are

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Speaker 3: under extreme supply shortage in the memory. Chinese are not

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Speaker 3: cheaper than peer groups anymore. But if it helps to

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Speaker 3: solve the supply bottleneck. Why not.

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Speaker 2: Well, it's interesting you make that point because on the

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Speaker 2: Bloomberg right now I'm getting a headline that US lawmakers

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Speaker 2: have sent a letter to Apple CEO Tim Cook basically

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Speaker 2: advising or warning Apple not to buy memory chips from

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Speaker 2: Chinese firms. What will the impact of that type of

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Speaker 2: policy be in your view?

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Speaker 3: It is possible if the product is being sold in

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Speaker 3: US soil. But if the product is being sold otherwise,

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Speaker 3: for example, in China or nearby China, I believe that

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Speaker 3: that's what apples are looking for. Of course, this is

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Speaker 3: a sensitive issue in terms of political and geopolitical issue.

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Speaker 3: But however, I believe that more and more companies are

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Speaker 3: willing to take an opportunity to source the chips from China.

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Speaker 3: But now the question is a twofold. One is the

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Speaker 3: product quality, and two is a political thing. In terms

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Speaker 3: of product quality, it's not the best I can say.

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Speaker 3: But you know, DRAM and nand nand is not really

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Speaker 3: a standard product. But DRAM is a standard product on

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Speaker 3: the Jedek standard. So if you are qualified, you can

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Speaker 3: sell it. You can replace other chip vendors, and at

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Speaker 3: the same time, in China, I reckon that there is

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Speaker 3: a bit of a sales subsidy. For example, if you

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Speaker 3: manufacture your hardware in China and if you are buying

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Speaker 3: China chips, then you get entitled to get some part

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Speaker 3: of your procurement proceed procure amount from as a subsidy.

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Speaker 3: That is a good help, especially under these a bomb

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Speaker 3: cost concern.

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Speaker 2: When I'm listening to you, I'm thinking of the Chinese

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Speaker 2: electric vehicle industry, and I don't know why with that

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Speaker 2: level of government subsidy, the degree to which manufacturers in

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Speaker 2: China were able to offer very very low prices and

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Speaker 2: essentially put the pressure on any competitor, whether it was

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Speaker 2: Tesla in China or European car manufacturers. So is this

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Speaker 2: a part of the strategy too on the part of Beijing,

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Speaker 2: that you want to come in and apply pressure on

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Speaker 2: competitors as a way of making life very difficult for them.

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Speaker 3: It is, But the difference between the IT product and

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Speaker 3: the automaker is automakers are a lot more long tailed products.

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Speaker 3: If you buy Tesla, for example, it can run five years.

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Speaker 3: But if you buy a smalltphone maybe on Eero too,

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Speaker 3: then then you need to replace it. Same goes to

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Speaker 3: AI as smartphones and PCs migrating into an AI, the

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Speaker 3: lifetime is going to be a lot shorter. So it

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Speaker 3: is yes, same discipline, same mandate, but the magnitude of

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Speaker 3: support is a little bit different.

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Speaker 2: So I'm glad you brought up AI before I let

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Speaker 2: you go. I think we have to address that issue

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Speaker 2: because we were talking about the earnings from Meta and

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Speaker 2: Microsoft obviously to hyperscalers, we were talking about the semiconductor

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Speaker 2: complex as well, which is a critical part of the

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Speaker 2: entire AI ecosystem. How are you feeling about AI right now?

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Speaker 2: And in terms of whether or not the market is

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Speaker 2: vulnerable to any further disappointment, is that a distinct possibility

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Speaker 2: in your view?

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Speaker 3: You know, this has been in the market as a

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Speaker 3: trillion dollar question, it's going to be the same forever.

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Speaker 3: But in my own understanding, this is the one, you know,

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Speaker 3: lifetime opportunity and innovation. Let's look back thirty years ago

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Speaker 3: when I was young, PC costs about two thousand dollars,

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Speaker 3: so as an inflation adjusted basis, it's got to be

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Speaker 3: minimum ten thousand or twenty thousand dollars as of now.

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Speaker 3: In the meantime, PC cost has been coming down dramatically.

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Speaker 3: AI cost no cost for token is going to be

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Speaker 3: the following the same way. So what now these are

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Speaker 3: Meta or Microsoft, Google, Amazon, This is CSP guys as

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Speaker 3: well as GPU guys. CPU guys are doing is more

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Speaker 3: like I call it Jensen strategy, aggressive procurement and if

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Speaker 3: it is a bit idle, you can hand it over

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Speaker 3: to other companies like a nail Clouds which was thirty

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Speaker 3: years ago, like a module company around the PC companies.

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Speaker 3: I believe that there is this kind of aggressive procurement

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Speaker 3: and development and leadership is not shrinking, it is expanding,

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Speaker 3: it is spreading. You probably have seen the AMD's recent

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Speaker 3: event Advancing AI twenty twenty six. They invested Entropy five

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Speaker 3: billion dollars, which is sharing the same thing. Some people

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Speaker 3: say this is a circular reference and this is not sustainable,

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Speaker 3: but we have to create such leadership. Otherwise nobody put

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Speaker 3: the money, nothing's happen to happen. So in my understanding,

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Speaker 3: let's assume up until today we only have one Jensen.

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Speaker 3: What if you have a multiple Gensen next year. That

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Speaker 3: is increasing level of competition in it, and everybody is

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Speaker 3: moving ahead based on each different workload. So we don't

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Speaker 3: really have to say this is battle right.

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Speaker 2: Ms, we will leave it there. Thank you so very much.

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Speaker 2: Mshong is one of the chief analyst at Counterpoint Research.

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Speaker 2: Joining from San Francisco here on the Daybreak Asia podcast.

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Speaker 2: Welcome back to the Daybreak Asia Podcast. I'm dek Krisner.

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Speaker 2: FED policymakers left interest rates unchanged for a fifth straight meeting,

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Speaker 2: Even so that vote was fractured. Three committee members were

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Speaker 2: in favor of raising the policy rate by twenty five

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Speaker 2: basis points, and in his media briefing, Chair Kevin Warsh

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Speaker 2: sounded hawkish.

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Speaker 4: For some households, businesses, and market professionals, five years of

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Speaker 4: high inflation have left a mistaken impression that's hard to

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Speaker 4: shake that the Fed this implicit inflation target was somehow

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Speaker 4: above two percent. Let me reiterate, there is no soft

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Speaker 4: inflation target.

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Speaker 2: But the bond market seemed to doubt his conviction, and

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Speaker 2: there was a bit of curiosity as to whether Warsh

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Speaker 2: was essentially outsourcing FED policy and letting the bond market

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Speaker 2: do the tightening. We had yield spiking at the long

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Speaker 2: end of the treasury curve. The thirty year was up

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Speaker 2: twelve basis points. In New York trading to five point

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Speaker 2: two one percent. That is the highest level since two

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Speaker 2: thousand and seven. And that's where we began our conversation

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Speaker 2: with Subnem calemni os Khan. Subnem is professor of International

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Speaker 2: economics at Brown University. She spoke with Bloomberg TV host

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Speaker 2: Heidi Stroud Watts a.

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Speaker 1: Good family five. He got one, that's for sure. I

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Speaker 1: do wonder when you take a look at the center votes,

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Speaker 1: when you take a look at how markets and oppositioning

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Speaker 1: for the next meeting, is there an issue of credibility

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Speaker 1: here at stake?

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Speaker 5: Thank you so much, Hedi for having me on the showls.

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Speaker 5: So I don't think we are there yet. Of course,

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Speaker 5: you know, you can interpret these two ways. You know,

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Speaker 5: at the kind of the bad site, you can interpret

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Speaker 5: the increase in long term yields as maybe markets are

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Speaker 5: pricing in problem with FED credibility. But my interpretation is

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Speaker 5: not that, because you can also have positive interpretation saying, okay,

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Speaker 5: those increase in the yields tell us that inflation is

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Speaker 5: a problem. It stays elevated, which you know FED admitted

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Speaker 5: it is in their statement and Governor Walsh said it

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Speaker 5: several times. But it is more of a disagreement, right,

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Speaker 5: There is more of a disagreement between the markets and

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Speaker 5: the FED, and also within the FED, which brings us

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Speaker 5: back to this good family fight. One important point here, though,

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Speaker 5: that is put and framed by markets and also within

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Speaker 5: today's development as a disagreement between the hulks and those

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Speaker 5: I wouldn't frame it like that because I think that

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Speaker 5: framing tells you inflation is elevated due to supply sharks,

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Speaker 5: but this is one off, so they will go away

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Speaker 5: on their own, so FED can look true. So all

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Speaker 5: we are disagreeing is about the timing, about the you know,

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Speaker 5: when they are going to disappear, and what is going

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Speaker 5: their impact going to be. I think this is not

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Speaker 5: the right framing. I think the right framing is the

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Speaker 5: real disagreement is about the model and how sharks propagate,

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Speaker 5: and that is the big unknown here.

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Speaker 1: And you can see that hurry in thirty years right

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Speaker 1: in terms of where they're sitting at. Does that tell

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Speaker 1: you how concerned markets are, particularly at the longer end,

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Speaker 1: worried about enduring inflation.

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Speaker 5: Yes, Market's clearly concerned about inflation. FED is concerned too.

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Speaker 5: It's just that markets are trying to make a sense

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Speaker 5: of this new FED. Right, so we heard a very

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Speaker 5: in a sense Hockey is fed, I mean in the talk, right,

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Speaker 5: so they admit disagreement. It is a nine three hold

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Speaker 5: the three descendants from regional FED presidents and you know,

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Speaker 5: so the market is trying to understand, Okay, everybody agrees

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Speaker 5: on inflation being a problem, but then why didn't you

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Speaker 5: hike today? That's where the market is, right, So market

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Speaker 5: is trying to make sense of the new FED. If

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Speaker 5: they are going to give us tough talk and they

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Speaker 5: do admit inflation is a problem, when are they going

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Speaker 5: to hike or if they are not going to hike,

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Speaker 5: how are they going to deal with this problem? So

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Speaker 5: market is trying to parse this out. Of course, the

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Speaker 5: first reaction, you know, should have been long term meals,

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Speaker 5: and that's what happens. So that's not surprising. But I

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Speaker 5: think we really have to watch what is going to

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Speaker 5: happen in the next few days in terms of how

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Speaker 5: market really try to parse this new FED. Information coming

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Speaker 5: from this new FED that really limits communication and also

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Speaker 5: drops forward guidance.

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Speaker 1: And as we speak, the backdrop is that even at

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Speaker 1: the moment we're hearing reports of renewed USS tracks against

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Speaker 1: the run, the straight up home mors remains closed. Other

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Speaker 1: key trading paths remain contentious as well. Across the Middle East,

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Speaker 1: President Trump is trying to rebuild his power for as well.

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Speaker 1: So if you take a look at those factors, I guess,

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Speaker 1: what does your research tell us about the enduring stickiness

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Speaker 1: of this type of inflation risk.

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Speaker 5: Indeed, this type of inflation is persistent, And that's the

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Speaker 5: overarching conclusion and headline result coming from our research. Because

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Speaker 5: our research is based on global networks. We try to

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Speaker 5: understand the propagation of supply shocks such as tariffs, such

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Speaker 5: as hormones, closure such as pandemics such as the energy

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Speaker 5: shock originally came from the Russian War. We are trying

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Speaker 5: to understand how these supply shocks travel through global production networks,

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Speaker 5: through input out put linkages, but also through global financial networks.

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Speaker 5: So that's I think something both markets and the FED

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Speaker 5: is missing right now because it's a macro view, but

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Speaker 5: it's a global macroview, right, not just a very nationalistic macroview.

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Speaker 5: And our research shows us that this type of inflation

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Speaker 5: is persistent under the assumption that FED looks true. So

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Speaker 5: I do agree with Governor worsh that inflation is a choice,

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Speaker 5: and FED is going to determine if these supply shocks

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Speaker 5: are going to be inflation, you know, or not at

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Speaker 5: the end. But unfortunately, if FED does look true and

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Speaker 5: treat these as level shocks, so one time increasing the

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Speaker 5: price level, this calls both for tariff and hormos, then

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Speaker 5: they are going to create persistent inflation even they disappear.

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Speaker 5: So even you know, we so entire Iran issue by tomorrow,

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Speaker 5: still there's going to be persistent inflation coming from that,

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Speaker 5: and permanently higher inflation coming from that. If again FED

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Speaker 5: looks through a tinking, this is just a one off shocks,

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Speaker 5: the tariff one we are now seeing it. Actually, the

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Speaker 5: current over four percent headline inflation over three percent core

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Speaker 5: inflation has a lot to do persistent of that inflation

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Speaker 5: has a lot to do with the terroiffs from last year.

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Speaker 2: That is anem Calumni Oskan, professor of International economics at

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Speaker 2: Brown University, speaking with Bloomberg TV host Heidi Stroud Watts,

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Speaker 2: bringing you their conversation here on the Daybreak Asia podcast.

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Speaker 2: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 2: Asia Edition podcast. Each weekday, we look at the story

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Speaker 2: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 2: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 2: or anywhere else you listen. Join us again tomorrow for

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Speaker 2: insight on the market moves from Hong Kong to Singapore

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Speaker 2: and Australia. I'm Doug Chrisner, and this is Bloomberg