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Speaker 1: Welcome to the Bloomberg pim L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa A. Bramowitz. Each day

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Speaker 1: we bring you the most important, noteworthy, and useful interviews

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Speaker 1: for you and your money, whether you're at the grocery

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Speaker 1: store or the trading floor. Find the Bloomberg p m

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Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com.

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Speaker 1: Time to turn to the US economy and what we

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Speaker 1: can read out of its performance in terms of investments.

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Speaker 1: Joining us as Gary Shilling. He is the president of

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Speaker 1: a Gary Shilling and Company. He is also a Bloomberg

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Speaker 1: View profiting columnists and Gary always a pleasure to speak

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Speaker 1: with you. UM, wonder if you could just give us

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Speaker 1: your thoughts based on today's payroll report non farm payroll report,

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Speaker 1: and are you still positioning yourself as long US treasuries. Yes,

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Speaker 1: we are, a matter of fact, we've we've stepped up

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Speaker 1: our position in the last several weeks and the portfolios

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Speaker 1: we manage. UM. I think we're in a situation here

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Speaker 1: where pay rolls are are growing but rather modestly. Nothing

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Speaker 1: really uh to get excited about. Nothing that's going to

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Speaker 1: change the Fed's view of the world. And of course

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Speaker 1: there's a big difference between what the Fed does on

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Speaker 1: the short end of the curve and where you get

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Speaker 1: out into the ten uere. And even more so as

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Speaker 1: you know him, the thirty year that I like, the

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Speaker 1: spillower is very limited when you get out there and

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Speaker 1: you've you've got a lot of deflationary forces, safe haven effects.

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Speaker 1: You look at what's happening just today here with the

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Speaker 1: latest turmoil on the on the trade front, and where

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Speaker 1: do people go. They go to treasuries, business as usual,

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Speaker 1: so Gary, So it sounds like you are currently out

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Speaker 1: there buying thirty year treasuries on a day like today.

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Speaker 1: I'm just wondering how overweight are you? And where do

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Speaker 1: you see the yield ending up? Because right now I'm

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Speaker 1: looking at a three percent yield on three year treasuries.

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Speaker 1: Where's it go? Well, all on record is as saying

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Speaker 1: I think it'll go to it'll go to two percent,

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Speaker 1: And really it's really the fact that the skin I

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Speaker 1: think we're in a world of a lot of deflationary forces,

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Speaker 1: and you know, protuctionism elenly is deflationary excent that dispose

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Speaker 1: economic growth. Although we're in a kabuki dance right now

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Speaker 1: posturing more than anything else. Uh. But but again the

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Speaker 1: safe haven effect. And you know one other thing. The

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Speaker 1: Chinese people worry about their dumping treasuries, but they're on

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Speaker 1: record is saying that they are not going to change

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Speaker 1: their their policy. And obviously if they started to sell treasuries, UH,

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Speaker 1: they would tank. And who would be the big losers

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Speaker 1: the Chinese because then the rest of their portfolio would

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Speaker 1: be vastly reduced. So UM, I think again the safe

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Speaker 1: haven effect and deflationary forces. So I think we go

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Speaker 1: to two and if we go to two percent, if

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Speaker 1: we go to two percent from here, in one year,

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Speaker 1: you'll make thirty percent on a thirty year coupon treasure

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Speaker 1: three and thirty three on a zero UH coupon treasury

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Speaker 1: thirty year. Tell us what your thoughts on the outlook

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Speaker 1: for commodity prices and specifically oil, well oil oil. Obviously

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Speaker 1: we're facing OLFAC, which is trying desperately to do what

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Speaker 1: they what they have had to do traditionally, which is

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Speaker 1: to be the swing producer, to cut back to accommodate

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Speaker 1: everybody else who wants a bigger share of the market.

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Speaker 1: The American frackers in particular, UH, They did that for

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Speaker 1: ten years. In November of often they said enough is enough.

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Speaker 1: They fled to the market. They went from thirty million

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Speaker 1: barrels a data thirty three point eight million almost overnight.

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Speaker 1: They wanted to squeeze out the flackers. Uh, frackers play

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Speaker 1: a glorify game of chicken, and hoof turned out to

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Speaker 1: be the chicken. It's olfac. So they're they're trying to

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Speaker 1: cut back. But the point is that the frackers are

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Speaker 1: very resilient and they're producing now. We're now looking and

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Speaker 1: I think at ten point four million barrels of a

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Speaker 1: US production atuff about half half a million barrels from

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Speaker 1: a year ago. And uh, yeah, I think there is

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Speaker 1: there is a range on this, but I think the

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Speaker 1: pressure is is down on oil prices. And the point

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Speaker 1: is that the longer OPEC goes and they've got to

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Speaker 1: Russia in other countries with him, of course, but the

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Speaker 1: longer that goes, the comfort is to maintain discipline because

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Speaker 1: they have huge budget deviasits are trying to fill it

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Speaker 1: one higher prices in order to get the revenues to

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Speaker 1: do that. In Saudi Arabia, Ran, Olivia, you name it. Uh.

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Speaker 1: And the point is that at some point somebody's gonna

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Speaker 1: say enough is enough. I'm gonna cheat. I'm going to

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Speaker 1: sell more because I desperately need the revenues. Gary. It

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Speaker 1: sounds like you're pretty barrish. Actually it's to other people.

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Speaker 1: What would what would you have to see to sort

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Speaker 1: of say to yourself? You know Paris on treasuries. Right,

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Speaker 1: you're not farrish on this in the traditional human ascid.

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Speaker 1: I have been since nineteen one when I said we're

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Speaker 1: entering the bond rally of the lifetime in the yield

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Speaker 1: on the third of your bond was was twelve point

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Speaker 1: six percent at that point. Yeah, but right now there's

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Speaker 1: something else driving in And I wanted to ask you

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Speaker 1: what would you have to see to think, huh, maybe

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Speaker 1: I'm maybe the U. S. Economy is doing better than

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Speaker 1: I think it has. It doesn't just the economy doing

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Speaker 1: better than The link with treasure yields is very clearly inflation.

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Speaker 1: There's about a sixty percent correlation between long term treasure

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Speaker 1: yields and inflation. And it would really take something that

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Speaker 1: would dramatically increase inflation. Now, historically that's been wars periods

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Speaker 1: when government spending vastly exceeds revenues on top of a

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Speaker 1: fully employed economy, and the economy is strained, you get

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Speaker 1: in inflation. The last time we had that, of course,

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Speaker 1: was with a great society and Vietnam spending back to

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Speaker 1: back in the late sixties and early seventies. Uh, could

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Speaker 1: that be created again? Sure? I mean if Congress the

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Speaker 1: administration really go hog while in terms of infrastructure spending

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Speaker 1: and military spending, there's a lot of pressure to do

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Speaker 1: so because voters are mad as hell or hasn't been

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Speaker 1: any growth in in real incomes for most people in

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Speaker 1: over a decade. That could do it, But that's that's

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Speaker 1: in a longer in a in a more fundamental stample,

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Speaker 1: you've got to see inflation and and otherwise we're in

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Speaker 1: an excess supply world. I mean, that's why Trump's got

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Speaker 1: the upper hand and the with the Chinese in an

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Speaker 1: upper in a in an excess supply world, who's got

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Speaker 1: the upper hand? And say not the seller? Gary? You

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Speaker 1: mentioned military spending. What do you think about investing in

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Speaker 1: aerospace and defense companies? We are in poor fellow as

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Speaker 1: we managed we we do have positions in the aerospace

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Speaker 1: and defense area. Have you been increasing them? No, No,

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Speaker 1: we've helped steady, but we have we have a we

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Speaker 1: have an extraordinary amount of cash. I mean having said that,

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Speaker 1: you know, we're in psories for aerospace, but we're really

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Speaker 1: very heavy on cash because you've you've had some much

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Speaker 1: more volatility, and I think there's this long bowlmarket in

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Speaker 1: stocks that started in March of of of two thousand nine. Uh,

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Speaker 1: you know, very steady and obviously spawned a lot of

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Speaker 1: a lot of excess risk taking because interest rates were

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Speaker 1: low and people thought they deserved more and they took

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Speaker 1: advantage of low volativity, the big play with VIX. But

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Speaker 1: of course that really started to come on glue in

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Speaker 1: early February when we saw the Vics take off and

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Speaker 1: and stocks Plumbert and Shan. But it's a very tricky

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Speaker 1: world right now because you haven't seen the usual massive

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Speaker 1: run for either treasuries or goal right, which would normally

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Speaker 1: be that the haven type of trade. Unfortunately, gonna have

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Speaker 1: to leave their Gary Shilling, president of A Gary Shilling

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Speaker 1: and Company, also Bloomberg View Profit and columnists, how do

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Speaker 1: trade disputes figure into the value of investments in China?

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Speaker 1: Here to help us understand this is Brendan A. Hearn.

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Speaker 1: He is the chief investment officer of Crane Shares and

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Speaker 1: he joins US now. Brendan, maybe you could just describe

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Speaker 1: sort of what is happened in the Chinese stock market,

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Speaker 1: what has been the reaction to trade tariffs and trade

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Speaker 1: potential trade wars between the United States and China. Yeah,

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Speaker 1: you know, the Shanghai and Shenzen markets PAM have been

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Speaker 1: closed for my my my favorite Chinese holiday tomb sweeping

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Speaker 1: both Thursday and today on Friday. Hong Kong was open today, um,

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Speaker 1: and I think most investor to be surprised. The the

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Speaker 1: Hanks saying actually gained uh just over one per cent

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Speaker 1: um and this was obviously included the post market close

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Speaker 1: uh comments from President Trump. So so actually the Hong

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Speaker 1: Kong market took it in stride. You know, Brandon, you

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Speaker 1: could argue that the US market is as well. A

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Speaker 1: lot of people who I speak to anyway, uh, they

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Speaker 1: just tell us, you know what, this is just a

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Speaker 1: war of words. This is chest beating. This is part

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Speaker 1: of the art of the deal. We're not paying attention,

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Speaker 1: should they? Yeah? I mean, I think ultimately there's there's

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Speaker 1: so much at risk for for both countries around further

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Speaker 1: s f lation that we certainly hope that this war

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Speaker 1: words is simply a part of that negotiating tactic. Uh, certainly,

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Speaker 1: there's just so much at stake that to to unravel UM,

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Speaker 1: you know, the great progress that's been made or do

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Speaker 1: a real, real, real shame and really would have a

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Speaker 1: disastrous effect for for arguably both parties. Right then, just

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Speaker 1: looking at the shares of Ali Baba Group as a

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Speaker 1: proxy down about one and a half percent so far

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Speaker 1: this year, is Ali Baba perhaps indicative of what we

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Speaker 1: can expect? In other words, would you be watching those

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Speaker 1: shares for any reaction based on these trade negotiations? Yeah.

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Speaker 1: I think it's interesting that the US list of Chinese

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Speaker 1: companies that that we hold within our k web or

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Speaker 1: trying to focus Internet Strategy UM are used as trying

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Speaker 1: to proxies. But the fight thing is, though UM, only

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Speaker 1: four per cent of the revenue generated by the companies

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Speaker 1: that we hold within k web are generated out side

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Speaker 1: of China. UM. You compare that to the SMP five hundred,

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Speaker 1: where over twenty of the US companies held within SMP

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Speaker 1: five hundred UH come from outside of the United States.

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Speaker 1: So it's so it's interesting if if you're if you're

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Speaker 1: selling your Ali Baba because you're worried about a trade war.

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Speaker 1: The reality is Ali Baba has virtually no exposure to

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Speaker 1: the United States. It's a domestically oriented company. It's hard,

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Speaker 1: it's really hard to understand that rationale. You know. One

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Speaker 1: thing that I'm trying to understand right now is it

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Speaker 1: seems quite clear, uh, that perhaps there could be a

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Speaker 1: more level playing field with China and the rest of

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Speaker 1: the world. A lot of the world agrees with that, frankly, Uh,

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Speaker 1: But what's unclear to me is how much are is

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Speaker 1: there concrete talking going on and versus how much is

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Speaker 1: this just sort of like a you know, one blow here,

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Speaker 1: one blow there, chest pouting here, and kind of like

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Speaker 1: a drumbeat something actually happening. Yeah, I definitely. One one

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Speaker 1: thing that I think the market, you know, didn't like

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Speaker 1: to hear was was, you know, Larry Cudlow, who threw

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Speaker 1: through a life life preserver to markets on Wednesday by

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Speaker 1: coming out and saying, oh, you know, this is a

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Speaker 1: negotiator coming out and saying that there's no talk has

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Speaker 1: taken place. Over a trillion in global market capitalization has

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Speaker 1: been lost um over the last several weeks globally. UM,

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Speaker 1: and and it's it's it's it's a little disconcerting that

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Speaker 1: that you know that the talks, these negotiations I haven't started. Um,

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Speaker 1: you know, so day came out and uh, I think

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Speaker 1: that's accelerated. Uh that you know, this is this says

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Speaker 1: serious implications and you know, I think you know, I

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Speaker 1: hope cooler heads prevail and discussion does take place. Uh.

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Speaker 1: There's great opportunities for both countries to enhance this relationship,

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Speaker 1: but you've got to get down and talk. Hopefully that

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Speaker 1: that takes place shortly. Brendan, what about smart investors? What

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Speaker 1: are they doing? I want to note that you've described

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Speaker 1: how the Lippo Group, which is a big real estate

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Speaker 1: company based in Indonesia, has been adding to their China stockholdings. Yeah.

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Speaker 1: One of the things that we've continued to see that

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Speaker 1: that is quite interesting. Over the last several weeks, we've

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Speaker 1: seen increased within Southbound connect trading, which has been closed

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Speaker 1: due to tomb sweeping, holiday um buying, and then more

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Speaker 1: recently we had uh the Lippo Group, who you know,

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Speaker 1: anyone who's traveled to Hong Kong, you see the big

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Speaker 1: skyscrapers with with the family name. So it is interesting

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Speaker 1: that we're seeing buying on weakness from both mainland as

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Speaker 1: well as now in this case a very very prestigious

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Speaker 1: family in in Hong Kong so Um and and even

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Speaker 1: even earlier this week it was interesting we actually saw

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Speaker 1: northbound foreign buying on weakness. So so I like to

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Speaker 1: hope that institutional investors are keeping up. People are willing

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Speaker 1: to to sell based on emotions Um and you know

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Speaker 1: professional investors are going to by those shares. Brendan are

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Speaker 1: real quick. If you could give a percent chance that

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Speaker 1: we are going to escalate into some sort of trade

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Speaker 1: or what percent chance would you give it, I think

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Speaker 1: on the talk it's it's probably in terms of the

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Speaker 1: reality of an actual trade war having a much much

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Speaker 1: low low percentage. There's just too much at stake. I

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Speaker 1: I would think, you know, I think Li said, you know,

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Speaker 1: no one wants to be known as orchestrating the smooth

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Speaker 1: hally and that that is what people will be go

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Speaker 1: down in history for if if this escalation actually takes place.

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Speaker 1: I don't think the reputation people have built successfully in

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Speaker 1: business are worth throwing away for for really just you

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Speaker 1: know a lot. I mean, there are very much grievances

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Speaker 1: that should be addressed by by the China side around

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Speaker 1: infectual property. At the same time, they've made great strides

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Speaker 1: in opening up. So hopefully those cooler heads prevailed in

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Speaker 1: her and thank you so much, Io of Crane Shares.

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Speaker 1: So with today's declines, we have turned read for the

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Speaker 1: year on the SMP five hundred uh. The Dow Jones

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Speaker 1: also read for the year. Who is out there willing

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Speaker 1: to buy? Well, perhaps we'll get our answer from Aaron Brown.

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Speaker 1: She is head of acid Allocation at UBS Asset Management,

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Speaker 1: overseeing about seven hundred and seventy billion dollars. It's based

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Speaker 1: in New York. Aaron, thank you so much for being here.

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Speaker 1: So we have seen this weakness. Are you buying yes,

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Speaker 1: So we have the view that through throughout the duration

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Speaker 1: of this year, we expect that equies are going to

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Speaker 1: end the year higher. So we're still expecting about mid

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Speaker 1: single digits earnings or SMP returns this year and double

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Speaker 1: digit earnings growth. So we are buying into pockets weakness. However,

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Speaker 1: right now here we've taken a little bit of a

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Speaker 1: weight and c mode to see some of the trade

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Speaker 1: tariff discussions come to a conclusion before we really start

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Speaker 1: in in force and start buying. This is important. In

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Speaker 1: other words, even if you don't necessarily believe that there's

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Speaker 1: going to be a full blown escalation, it isn't worth

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Speaker 1: it to you. It sounds like, if I'm interpreting this

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Speaker 1: right and correct me if I'm wrong, to step in here,

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Speaker 1: because that possibility is potentially highly damaging and could change

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Speaker 1: your view. Yeah, so I think for now you're getting

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Speaker 1: paid to weight right. I don't think that there's a

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Speaker 1: necessarily a need to be stepping in right here, right

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Speaker 1: now and buying stocks. That said, on the margin, we're

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Speaker 1: nibbling when we see real pockets of weakness in specific

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Speaker 1: sectors or in specific you know, sort of areas of

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Speaker 1: the market that we like. We actually think that given

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Speaker 1: the declines, valuations look attractive. But you're also having a

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Speaker 1: higher risk premium priced into stocks. So the counterbalance of

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Speaker 1: that right now means we're standing on the sidelines with

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Speaker 1: some dry powder, getting ready to buy more some of

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Speaker 1: the changes we have made of late. We are buying

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Speaker 1: a little bit of a e M because we think

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Speaker 1: that e M has been hit but actually has been

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Speaker 1: performing pretty well as actually held in there, and we

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Speaker 1: think that the earnings trajectory and the structural underweight within

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Speaker 1: emerging markets still supports and overweight to e M, so

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Speaker 1: we're buying there, but we're also on the other side

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Speaker 1: of that doing some currency trades like buying the en

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Speaker 1: um to support and to support sort of our our

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Speaker 1: risk off positions, and also being a little bit longer

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Speaker 1: US treasury yields, so buying a little bit of equities,

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Speaker 1: but also counter balancing that with a little bit more

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Speaker 1: defensive positioning in our FX and our rape books. I

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Speaker 1: want to just continue on what you talked about having

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Speaker 1: to do with currencies and get your thoughts on the dollar.

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Speaker 1: Do you think that we're going to see increased dollar

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Speaker 1: weakness throughout the duration of this year. Absolutely. Our view

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Speaker 1: is that the dollar will weakend versus the euro to

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Speaker 1: about one thirty by the end of the year. We

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Speaker 1: expect that versus the end we expect a dollar end

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Speaker 1: to end the year around a hundred. So throughout the

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Speaker 1: duration you know, this year, we are expecting that the

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Speaker 1: dollar will continue to weaken. Most of that is based

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Speaker 1: on the fact that we think that the FED is

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Speaker 1: further ahead in terms of the rate trajectory path than

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Speaker 1: either the E C B or the B O J.

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Speaker 1: And so we think as we continue throughout the duration

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Speaker 1: of the year and we start to see interest rate

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Speaker 1: differentials converge, that will drive the dollar weaker versus our

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Speaker 1: d d M counterparts. However, versus emerging markets. We think

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Speaker 1: that the emerging markets are again structurally underweight, and so

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Speaker 1: we think that E M will also outperform the dollar.

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Speaker 1: In the near term. We are running fairly neutral in

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Speaker 1: terms of our overall dollar exposure, but we do expect

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Speaker 1: that as we move into the second half of the year,

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Speaker 1: we will start putting on fairly significant dollar underweights. Again, UM,

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Speaker 1: I want to I want to just pick up on

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Speaker 1: one thing that you said, where you were saying, you know,

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Speaker 1: perhaps for we're taking a weight and see approach, but

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Speaker 1: nibbling around the edges and sectors that we like. What

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Speaker 1: sectors are those? And I'm thinking is that tech? Are

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Speaker 1: you out there buying Facebook when face fit goes down?

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Speaker 1: So we leg tech as a sector right now. We

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Speaker 1: do think that the earnings fundamental picture for tech is

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Speaker 1: still very strongly And are you gonna be watching Mark

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Speaker 1: Zuckerberg next week? Absolutely. But but but I also think

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Speaker 1: you know, what's interesting about this is that you actually

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Speaker 1: may see a comparative advantage for the larger tech the

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Speaker 1: larger cap tech companies who are able to appropriately size

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Speaker 1: their their staff in order to potentially deal with higher regulation.

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Speaker 1: So if you think about small cap tech, they may

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Speaker 1: not have the resources to appropriately put the governance and

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Speaker 1: the compliance structures in place, similar to what we saw

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Speaker 1: with the banking sector several years ago UM. And so

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Speaker 1: going forward, actually, these big tech companies actually have the

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Speaker 1: capabilities to potentially, you know, sort of adapt themselves in

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Speaker 1: order to deal with the more compliance or regulatory heavy

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Speaker 1: industry to come bigger. If you're if you're adding to

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Speaker 1: let's say, emerging market positions, if you are adding whatever

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Speaker 1: valuation you feel appropriate to technology holdings, what are you

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Speaker 1: selling or what are you diminishing in the asset allocation

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Speaker 1: model in order to bring up those portions of the portfolio. Right, So,

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Speaker 1: overall we've decreased our equity weight somewhat, and that that's

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Speaker 1: really broad sector equity weight. So if you think of

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Speaker 1: just sort of our broad market beta to the SMP

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Speaker 1: five hundred UM, we don't as an asset management firm

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Speaker 1: we and and in the multi asset space we predominantly

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Speaker 1: by e T F s or futures or sectors. We

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Speaker 1: don't buy individual companies, um, So that's that we're selling

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Speaker 1: down some of our SMP weight. We've also started to

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Speaker 1: sell down some of our European equity overweight, which we

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Speaker 1: had been running overweight for the last six months. That

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Speaker 1: hasn't performed as we would have expected if you started

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Speaker 1: to see some of the economic data rolling over. So

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Speaker 1: we've lightened our risk a little bit there. And then

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Speaker 1: one of the most significant changes is we've also started

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Speaker 1: to sell down some of our Japanese equity overweight as well.

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Speaker 1: It's interesting, especially since you're going into the end. One

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Speaker 1: thing that we've heard from a lot of investors is

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Speaker 1: that they've been increasing their allocation to treasuries, and you

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Speaker 1: said that you were as well, although not necessarily on

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Speaker 1: the long end, but on the short end of the curve. Basically,

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Speaker 1: now that you're actually getting yield onto your treasuries, it's

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Speaker 1: a great time, do you agree, I mean, is that

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Speaker 1: sort of a great holding spot. So for for us,

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Speaker 1: we actually think the longer end for asset managers as

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Speaker 1: a better holding spot. And that's because a you get

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Speaker 1: incremental yield, but also when you look at the stock

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Speaker 1: bond correlation, it's the ten year yield oft historically has

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Speaker 1: offered a very good counterbalance to the equity, you know,

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Speaker 1: risk that you're holding in your portfolio. So as a

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Speaker 1: diversifier of risk over the long to medium term, the

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Speaker 1: tenure bond actually in portfolios works very well to diversify

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Speaker 1: out some of the equity risk. And so typically you

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Speaker 1: see that as a is a minimizes the overall portfolio

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Speaker 1: risk in our asset allocation models pretty significantly. Even though

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Speaker 1: you've seen that that stock bond correlation start to move

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Speaker 1: less negative, it's still in negative territory and it still

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Speaker 1: is I think a very appropriate asset for diversified portfolio holdings.

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Speaker 1: Just quickly as an something that's got a lot of

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Speaker 1: experience in the world of hedge funds, I'm sure you

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Speaker 1: noted the Pershing Square capital and the redemptions. There any

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Speaker 1: thoughts on what you can see for hedge funds this

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Speaker 1: uh this year, So I think for so what we've

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Speaker 1: actually started to see is active management as a factor

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Speaker 1: has started to do better. Um, we've been in you know,

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Speaker 1: sort of four to five years where active management has

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Speaker 1: greatly underperformed passive management. As a result of that, you've

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Speaker 1: seen hedge funds and active managers suffer pretty significantly. I

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Speaker 1: think what you're starting to see now is that active

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Speaker 1: managers with the right business model are now starting to

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Speaker 1: do quite well, and you saw them actually outperform in

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Speaker 1: the most recent period of volatility. Historically, during periods of

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Speaker 1: higher volatility, active management outperforms. So we like active management here.

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Speaker 1: Thanks very much for being with us. Aaron Brown is

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Speaker 1: the head of asset Allocation for u Bsset Management, helping

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Speaker 1: to manage within seven hundred and seventy billion dollars of

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Speaker 1: customer assets. Since George Korean became the president chief executive

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Speaker 1: officer of net App in mid two thousand and fifteen,

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Speaker 1: this data storage company's stock has gained more than a

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Speaker 1: hundred and sixteen per cent. George Korean joins us now

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Speaker 1: along with our own Non sinof Sven, who is a

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Speaker 1: senior semiconductor and hardware analyst for Bloomberg Intelligence. George, I

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Speaker 1: want to just start with you and ask, you know,

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Speaker 1: can you give us just a short overview of what's

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Speaker 1: happened at the company, what the company is, and how

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00:22:58,480 --> 00:23:02,240
Speaker 1: it's transformed since you took office. We are a company

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Speaker 1: that enables customers to use data for business advantage. Increasingly,

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Speaker 1: trends like the hybrid cloud or artificial intelligence and machine

407
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Speaker 1: learning depend on sophisticated data management capabilities to allow businesses

408
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Speaker 1: to operate efficiently and productively in service of their customers,

409
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Speaker 1: and net app is the data authority for these trends.

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Speaker 1: We have superior technology, attract record of working with the

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Speaker 1: world's leading institutions, as well as increasingly endorsed by the

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Speaker 1: biggest hyper scala cloud providers. So Ananata Bus and I

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Speaker 1: want to just bring you in here. Can you give

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Speaker 1: us sort of an overview of where this data storage

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Speaker 1: industry is right now? Where are something like what's the

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Speaker 1: biggest challenge right now for it? Great? Thanks, So, one

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Speaker 1: of the biggest trends in data storage overall, if you

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Speaker 1: look at network storage systems, that market is shrinking. But

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Speaker 1: one of the things that NetApp has done and transformed

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Speaker 1: itself is it is the only company in our minds

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Speaker 1: that has become relevant to the public cloud model. They're

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Speaker 1: transforming themselves from a legacy network storage provider to a

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Speaker 1: company that is cloud biased, increasingly software based, and increasingly

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Speaker 1: new technology based away from spinning disks to more all

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Speaker 1: flash arrays. So if you put all of those things together,

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Speaker 1: this is a company that is pivoted itself pretty aggressively

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Speaker 1: successfully over the past three years. And and I have

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Speaker 1: to give credit or creditors due George is responsible for

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Speaker 1: a substantial portion of that. George, maybe just delve a

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Speaker 1: little bit into the actual technology something called fabric attached

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Speaker 1: storage as well as all flash storage, and maybe just

432
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Speaker 1: explain it and offer it as a story so that

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00:24:51,280 --> 00:24:54,879
Speaker 1: people understand when they are using the data either that

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Speaker 1: their company is able to create internally or that they

435
00:24:58,320 --> 00:25:02,959
Speaker 1: received from their customer base. M companies want to aggregate

436
00:25:03,160 --> 00:25:07,560
Speaker 1: large amounts of data to understand their customers better, to

437
00:25:07,800 --> 00:25:11,159
Speaker 1: understand their own business performance better, and to do that

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00:25:11,400 --> 00:25:17,879
Speaker 1: they connect different computing systems to common network connected storage.

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00:25:18,560 --> 00:25:23,080
Speaker 1: Those network connected storage systems were historically within the company's

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Speaker 1: data center. What customers want to do now increasingly is

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Speaker 1: to use storage that's available in the public cloud. And

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Speaker 1: what we uniquely in the industry do is to be

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Speaker 1: able to make all of those locations where people want

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Speaker 1: to use data seamlessly integrated. We call that idea data fabric,

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Speaker 1: and it's growing very quickly as a percentage of our business.

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Speaker 1: You know. One of the things that's also impressive is

447
00:25:51,200 --> 00:25:54,760
Speaker 1: the fact that this is a company that is very

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Speaker 1: differentiated versus legacy I T providers such as Dell, EMC

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Speaker 1: or HP Enterprise. Perhaps UM George, you could you could

450
00:26:03,160 --> 00:26:07,639
Speaker 1: sort of honing on sort of the differences. Why is

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00:26:07,760 --> 00:26:11,120
Speaker 1: net app different? I think one of the unique things

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Speaker 1: that we are focused on is being the world's best

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Speaker 1: at the problem of data management, which is not only

454
00:26:17,920 --> 00:26:23,480
Speaker 1: increasingly business critical but also more complex. So we can

455
00:26:23,600 --> 00:26:27,639
Speaker 1: partner effectively with the cloud providers, we can partner with

456
00:26:27,840 --> 00:26:32,760
Speaker 1: software companies, we can partner with chip manufacturers to build

457
00:26:32,880 --> 00:26:36,560
Speaker 1: the best solutions for our customers. And we are entirely

458
00:26:36,640 --> 00:26:39,960
Speaker 1: focused on that problem. And that's why, as a percentage

459
00:26:40,000 --> 00:26:44,800
Speaker 1: of our business, the new technologies, which we call strategic solutions,

460
00:26:45,240 --> 00:26:49,280
Speaker 1: are now seventy of net product revenue and are growing

461
00:26:49,400 --> 00:26:53,159
Speaker 1: twent year on year. It represents the power of our

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00:26:53,240 --> 00:26:57,320
Speaker 1: new technology portfolio. How concerned are you about the protection

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00:26:57,640 --> 00:27:02,640
Speaker 1: of data against breaches or hacks or inappropriate usage? Considering

464
00:27:03,240 --> 00:27:06,160
Speaker 1: how much focused there is on that These days, it's

465
00:27:06,160 --> 00:27:10,440
Speaker 1: an absolutely important challenge that we help our customers deal with.

466
00:27:11,640 --> 00:27:15,960
Speaker 1: Data is the lifeblood of a digital organization and being

467
00:27:16,040 --> 00:27:19,320
Speaker 1: a steward of that is something that our customers stake

468
00:27:19,440 --> 00:27:22,800
Speaker 1: as a core part of their mission. We provide them

469
00:27:22,880 --> 00:27:27,359
Speaker 1: with tools and technology that enables them to accomplish their mission.

470
00:27:27,480 --> 00:27:29,880
Speaker 1: What's your biggest fear when it comes to data security?

471
00:27:30,840 --> 00:27:36,359
Speaker 1: I think it's malicious insiders that have access to data

472
00:27:37,040 --> 00:27:42,959
Speaker 1: to support a business's mission now becoming opposed to that mission. Right,

473
00:27:43,080 --> 00:27:46,480
Speaker 1: So it's very very hard for companies to be able

474
00:27:46,560 --> 00:27:51,560
Speaker 1: to protect their resources from internal attack, and those internal

475
00:27:51,600 --> 00:27:56,920
Speaker 1: attacks now take on state sponsored agents, for example. And

476
00:27:57,040 --> 00:28:00,280
Speaker 1: so we continue to work with the industry to build

477
00:28:00,359 --> 00:28:04,560
Speaker 1: more and more capabilities to not only provide customers with

478
00:28:04,800 --> 00:28:08,040
Speaker 1: ideas of who is accessing the data, but when and

479
00:28:08,119 --> 00:28:12,480
Speaker 1: where they are accessing it from. They had their handless

480
00:28:12,560 --> 00:28:15,440
Speaker 1: day yesterday and they sent a very upbeat message both

481
00:28:15,480 --> 00:28:17,920
Speaker 1: in terms of top line and bottom line growth. So

482
00:28:18,000 --> 00:28:21,800
Speaker 1: in this era, from a from a technology legacy technology

483
00:28:21,840 --> 00:28:25,440
Speaker 1: hardware perspective, where trends are generally deficionary, this is a

484
00:28:25,480 --> 00:28:28,760
Speaker 1: company that is going to grow conservatively at the mid

485
00:28:28,840 --> 00:28:30,720
Speaker 1: single digit on the top line and earnings growth the

486
00:28:30,720 --> 00:28:34,440
Speaker 1: word about so I thought there was a great upbeat

487
00:28:34,640 --> 00:28:39,760
Speaker 1: message that that net app sent on its handless stay.

488
00:28:40,400 --> 00:28:43,880
Speaker 1: Thank you. We feel bullish about our prospects. Yesterday we

489
00:28:44,000 --> 00:28:48,160
Speaker 1: talked about growth top line growth in the mid single digits,

490
00:28:48,200 --> 00:28:52,080
Speaker 1: which represents both share gain in our existing markets at

491
00:28:52,120 --> 00:28:55,520
Speaker 1: the expense of legacy competitors, as well as the addition

492
00:28:55,600 --> 00:28:59,920
Speaker 1: of new markets like the cloud. It reflects the discipline

493
00:29:00,040 --> 00:29:03,480
Speaker 1: our operating model, where we are raising our guidance for

494
00:29:03,600 --> 00:29:09,400
Speaker 1: operating margin from where it is today to reflecting an

495
00:29:09,480 --> 00:29:13,320
Speaker 1: increased focus on the best markets and an increasing contribution

496
00:29:13,400 --> 00:29:19,400
Speaker 1: from software or our portfolio, and earnings leverage by big UH,

497
00:29:19,840 --> 00:29:23,840
Speaker 1: commitment to capital returns through doubling our dividend and a

498
00:29:23,920 --> 00:29:27,640
Speaker 1: new authorization for four billion dollars in buy back on

499
00:29:27,800 --> 00:29:31,120
Speaker 1: a trade of Austin as our senior semiconductor hardware analyst

500
00:29:31,160 --> 00:29:34,880
Speaker 1: from Bloomberg Intelligence, I keep hearing about how storage is

501
00:29:34,960 --> 00:29:40,080
Speaker 1: a commodity. How does something like net app uh evade

502
00:29:40,200 --> 00:29:43,960
Speaker 1: the commodity trap? Is it through their software, through the

503
00:29:44,080 --> 00:29:47,240
Speaker 1: use of on tap? What makes it happen? You answered

504
00:29:47,240 --> 00:29:50,240
Speaker 1: the question, your storage is the commodity? Absolutely So what

505
00:29:50,560 --> 00:29:53,240
Speaker 1: value add can you provide on top of that storage

506
00:29:53,240 --> 00:29:57,240
Speaker 1: system is what makes it differentiated, what makes it key. Right,

507
00:29:57,880 --> 00:30:00,800
Speaker 1: anybody can sell your disk, anybody can sell you sew

508
00:30:00,840 --> 00:30:03,880
Speaker 1: this data race. But the value and comes from the software.

509
00:30:04,400 --> 00:30:07,360
Speaker 1: And again it's it needs to be consistent with its

510
00:30:07,400 --> 00:30:10,400
Speaker 1: storage as in house or in a public cloud, or

511
00:30:10,720 --> 00:30:13,840
Speaker 1: somewhere in between, a composite of all of those. The

512
00:30:13,920 --> 00:30:16,600
Speaker 1: software is what drives the architecture. All right, well done,

513
00:30:16,680 --> 00:30:18,600
Speaker 1: Thanks very much a gentleman for coming in on a

514
00:30:18,680 --> 00:30:21,200
Speaker 1: train of us and as our senior semiconductor and hardware

515
00:30:21,240 --> 00:30:25,120
Speaker 1: analyst for Bloomberg Intelligence, and our thanks also to George Curran.

516
00:30:25,240 --> 00:30:29,240
Speaker 1: He is the president and the chief executive of NetApp.

517
00:30:29,760 --> 00:30:32,880
Speaker 1: Coming up on Bloomberg Markets and we're gonna be talking

518
00:30:33,080 --> 00:30:36,600
Speaker 1: about municipal bonds. We've got Joe Maisak, editor for the

519
00:30:36,720 --> 00:30:40,840
Speaker 1: Municipal bond brief for Bloomberg Briefs. I'm pim Fox, my

520
00:30:41,000 --> 00:30:48,120
Speaker 1: co host Lisa Abramwitz. This is Bloomberg. Thanks for listening

521
00:30:48,200 --> 00:30:51,040
Speaker 1: to the Bloomberg P and L podcast. You can subscribe

522
00:30:51,080 --> 00:30:54,640
Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever

523
00:30:54,720 --> 00:30:58,200
Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter

524
00:30:58,520 --> 00:31:02,040
Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's

525
00:31:02,080 --> 00:31:05,080
Speaker 1: one before the podcast. You can always catch us worldwide

526
00:31:05,120 --> 00:31:06,040
Speaker 1: on Bloomberg Radio