Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find the Bloomberg P L Podcast on iTunes,
Speaker 1: SoundCloud and at Bloomberg dot com. There might be a
Speaker 1: snow jump coming to the East Coast, but there is
Speaker 1: a dump of bad news coming for the auto industry.
Speaker 1: You have uh the U S subprime auto lenders losing
Speaker 1: the most money on car loans at the highest rate
Speaker 1: since the aftermath of the two thousand and eight financial crisis.
Speaker 1: And Kevin Tynan, Bloomberg Intelligence automobile analyst for North America,
Speaker 1: put out a report today saying as bad as two
Speaker 1: thousand and sixteen looked for car sales, two thousand and
Speaker 1: seventeen starting off worse. Let's bring him in, Kevin. We
Speaker 1: appreciate you joining us, and you have this fantastic statistic
Speaker 1: that cars accounted for just thirty nine percent of total
Speaker 1: US sales, the lowest percentage in history. But that might
Speaker 1: not not be as bad as it gets, right, Oh No,
Speaker 1: it's it's definitely going to get worse. Um And I
Speaker 1: think what is different now. Historically what you would see
Speaker 1: is demand cycle in and out of cars to trucks
Speaker 1: and back and forth, and um in some inventory adjustment
Speaker 1: with incentive spending, and then everything sort of levels out.
Speaker 1: And what different this time is that the and and
Speaker 1: this was the sort of crux of the piece, was
Speaker 1: that the revenue generating segments are all trucks, the top
Speaker 1: three or trucks and really pushing cars further and further
Speaker 1: down the list. And why it's different this time is
Speaker 1: because the automakers see where that revenue is being generated
Speaker 1: and are actively unwinding their car positions, understanding that these
Speaker 1: segments they're going to continue to shrink and shrink and shrink,
Speaker 1: and they will align supply with demand which will be
Speaker 1: much lower. So rather than waiting for it to come back,
Speaker 1: they're actively getting out of those those segments, and it
Speaker 1: will make it impossible for cars to ever recover, regardless
Speaker 1: of gas lean prices. Kevin has the automobile industry ever
Speaker 1: embarked on a similar strategy and found it to be
Speaker 1: wanting um no uh in the sense that we've I
Speaker 1: think what's happening Wednesday with cafe rules and and that
Speaker 1: I tell people about this because this is very important
Speaker 1: to the overall disposition of an automaker's fleet, and it's
Speaker 1: related to how many miles per gallon the fleet has
Speaker 1: to get right and arguably, and if you look at
Speaker 1: some of the some of the graphs in the US
Speaker 1: in North America, we've always wanted to buy trucks. There's
Speaker 1: a period between the two recessions that truck sales spiked
Speaker 1: as well, and that's the two times that that car
Speaker 1: car sales recovered were cash for clunkers. Uh and then
Speaker 1: when guest Lee went above four dollars a gallon in
Speaker 1: two thousand and eight. Uh. So we've always wanted to
Speaker 1: buy trucks, but this, this corporate average fuel economy standard
Speaker 1: has had sort of affecting the supply side of the equation.
Speaker 1: Telent automakers, you have to build these things to be
Speaker 1: compliant with these rules, whether or not the consumer wants
Speaker 1: them or not. And I think that's where we're in
Speaker 1: new territory that says those rules didn't really take into
Speaker 1: account the consumer. All all the onus was on the manufacturers.
Speaker 1: Now with production and the administration saying we want you
Speaker 1: to produce in the US. I think the automakers are
Speaker 1: going back to President Trump and saying, we will produce
Speaker 1: in the US, but it has to be trucks. If
Speaker 1: it's going to be trucks, you have to help us
Speaker 1: on the cafe side. Well, so just to give us
Speaker 1: a little bit of perspective here, how much more expensive
Speaker 1: on average our trucks and cars? Well, if you look
Speaker 1: at it segment by segment, and I'll just take for example,
Speaker 1: the largest truck segment by volume, not by not by revenue,
Speaker 1: but by volume, is compact crossover SUVs. The largest car
Speaker 1: segment is compact car. So those two line up pretty nicely. Um,
Speaker 1: the difference in retail revenue is about six thousand dollars
Speaker 1: between the two. So you'd be in the low twenties
Speaker 1: for your average compact car. You'd be in the mid
Speaker 1: to upper twenties for your average compact crossover. And I
Speaker 1: wanted to get back to the whole idea of subprime
Speaker 1: auto loans. Is there an equal proportion of subprime auto
Speaker 1: loans for people to buy trucks as well as cars.
Speaker 1: Is it more directed toward cars. I'm just basically trying
Speaker 1: to figure out, you know, because potentially that could mean
Speaker 1: that the losses are that much greater on the trucks
Speaker 1: if somebody is not able to pay. Correct. Yeah, it
Speaker 1: would be because those transaction prices are higher. And really,
Speaker 1: I think what you're seeing when you look at the
Speaker 1: average retail transaction price in the US, it's continually going
Speaker 1: up because of this mixed shift. But at the same time,
Speaker 1: it's also why we're seeing a lot of lease penet
Speaker 1: ration because it creates affordability. So what you have is
Speaker 1: this subprime is pulling new buyers into the market, whether
Speaker 1: that's lower credit ratings, whether that's longer terms, uh, you know,
Speaker 1: bigger down payments, or however you have to get that
Speaker 1: consumer to that monthly payment that they can afford, because
Speaker 1: that's really how we buy vehicles in the US. So
Speaker 1: if leasing makes more sense, we'll just we'll basically rent
Speaker 1: you the car for part of the term and get
Speaker 1: you to that number that makes sense to you. So
Speaker 1: so there's a lot of different ways that that the
Speaker 1: lenders and the automakers are getting people off the sidelines
Speaker 1: and into vehicles, and it's resulting in higher prices. A
Speaker 1: shift from into luxury entry luxury more so than we
Speaker 1: had seen historically. But there's a lot of risk associated
Speaker 1: with that as well. Well. As much as I will
Speaker 1: miss my you know, the nine nine Chevrolet Camaro with
Speaker 1: the zero one engine, I'm sorry, Kenneth, I'm not going
Speaker 1: to Kevin, I'm not gonna be able to, uh, you know,
Speaker 1: sort of look at it anymore with those feelings because
Speaker 1: everything will have disappeared, at least in that segment category.
Speaker 1: So who's so who and where are the people who
Speaker 1: are going to make up the difference who are going
Speaker 1: to actually continue that tradition. And then I want you
Speaker 1: to just give your thoughts about US auto companies maybe
Speaker 1: doing cars outside the United States, right, And let me
Speaker 1: just say, I think in one of the areas on
Speaker 1: the car side that I think is reasonably protect protected
Speaker 1: is is that performance segment. And you look at uh,
Speaker 1: you know, Tim kneskis at at Chrysler, who's a maniac
Speaker 1: in a good way, you know, and you have hell
Speaker 1: cats and demons. And I'm glad because I was, you know,
Speaker 1: I was looking at a seventeen Camaro to SS you know,
Speaker 1: the fiftieth anniversary edition. Yeah, those I think you're okay there.
Speaker 1: I think that that the performance stuff and even if
Speaker 1: you look at Cadillac, the V series stuff, and even
Speaker 1: in the luxury segments, I think performances is a little
Speaker 1: bit protected. People will always want that and the physics
Speaker 1: just don't work as well in trucks. So there, I
Speaker 1: think you're okay. I think it's it's the garden variety,
Speaker 1: the sort of commodity cars. How about the Lincoln in China. Yeah,
Speaker 1: you know, And I think that that markets outside of
Speaker 1: the US will adjust to things and taste are a
Speaker 1: little bit different. Whether it's weather, congestion, there's issues that
Speaker 1: go into it to what the consumer prefers. But we're
Speaker 1: also seeing globally, even in Europe, we're seeing a mixed
Speaker 1: shift to trucks because we can do more with fuel economy, lightweighting.
Speaker 1: We're getting better driving dynamics out of truck bodies than
Speaker 1: we than we ever have, and it's it's helping shift
Speaker 1: away from cars to trucks. Thanks very much for illuminating
Speaker 1: all this force and talking cars. Kevin Tynan. He's our
Speaker 1: senior a senior auto's analyst for Bloomberg Intelligence, and you
Speaker 1: can follow him on Twitter at keV Tynan Ten, Lisa Abrams.
Speaker 1: We've been learning a lot about artificial intelligence robots. You know,
Speaker 1: I think that three D printing can also be included
Speaker 1: in that particular list. Because there is a huge conference
Speaker 1: that is going to take place beginning tomorrow at the
Speaker 1: Javits Center, and it is inside three D printing. It's
Speaker 1: the conference and the expo. It's got thirty eight events.
Speaker 1: It's the largest event worldwide. And get this the presentation.
Speaker 1: One of them is by Dr Orn Temper and he
Speaker 1: uses three D printing in plastic and reconstructive surgery. Let's
Speaker 1: learn more about all of these things. We want to
Speaker 1: bring in Tyler Benster, general partner at Asimov Ventures in Seattle, Washington.
Speaker 1: Also Samil Hargovn, co founder and CEO of We've spelled
Speaker 1: w I I VV might not be exactly intuitive in
Speaker 1: San Diego, California. So Tyler, I want to start with you,
Speaker 1: what do you think is going to be the hottest
Speaker 1: development at this three D printing conference this year? So
Speaker 1: it's a really exciting year for three D printing. We've
Speaker 1: been saying for a long time in industry, how three
Speaker 1: D printing is going to go mainstream and key where
Speaker 1: they're going to and I think Seen is the year
Speaker 1: where we actually are seeing this happen. So we have
Speaker 1: a few new developments. UM on the medical side has
Speaker 1: highlighted earlier with dr Orn incredible new developments going on
Speaker 1: in implants, orthopedic game plants, companies like added to orthopedics.
Speaker 1: We have a wonderful new technologies that are allowing doctors
Speaker 1: to literally save lives and separate can join twins bas
Speaker 1: surgical planning and actual surgical cutting guides. And then we
Speaker 1: have this whole new movement in medals where we're finally
Speaker 1: starting to see this transition from three D printing is
Speaker 1: a prototyping technology to want to finished good production. And
Speaker 1: I know that we're really delighted to have Shamille on
Speaker 1: here with us who has really been actually practicing finish
Speaker 1: kid production in the flesh. I got a note that Shamil,
Speaker 1: before you answer to the details of Weave, is that
Speaker 1: you are the company. You're the CEO of the startup
Speaker 1: company we've and you're trying to make it happen, and
Speaker 1: you're wearing the suit. And Tyler, who happens to just
Speaker 1: work at Asithma benches as a partner, he's the money guy.
Speaker 1: He is wearing this Stanford hoodie. I mean, the contrast
Speaker 1: cannot be better for for the setup. So I think
Speaker 1: you you're on the bright path. Well, it's not every
Speaker 1: day a startup CEO like me gets to get pulled
Speaker 1: up to New York to give this conversation. Well, I
Speaker 1: was going to say to you raised over five million
Speaker 1: dollars in a series A financing just recently, right, Yes, sir,
Speaker 1: all right, tell us what you're gonna do with the money.
Speaker 1: And you've brought some things along, custom fit three D
Speaker 1: printed insoles. Yes, yes, we are what I would say
Speaker 1: actually doing it today, which is manufacturing in America three
Speaker 1: D printed final product. And specifically we're working with custom
Speaker 1: footwear which you order by measuring your feet using your smartphone,
Speaker 1: and from there we are able to say into your
Speaker 1: product in under seven days. And what I'm here to
Speaker 1: tell you is for the footwear and apparel industry, like
Speaker 1: like many other industries, made in America, is starting to
Speaker 1: make business sense again in order to offer consumers that
Speaker 1: kinds of products that they expect and want. Can I
Speaker 1: can I just ask Shamille, what's the difference between a
Speaker 1: machine that is automated and you know, just that's maybe
Speaker 1: directed by one person somewhere at least overseen, which we've
Speaker 1: seen for years. And three D printing, Yeah, and three
Speaker 1: D printing it essentially allows you to take the complexity
Speaker 1: away from the human uh and and and it digitally
Speaker 1: is able to make the complex custom parts of products
Speaker 1: that you need. And what we do is we marry
Speaker 1: that with with sort of traditional manufacturing to make what
Speaker 1: we called hybrid products. Okay, and then Tyler, I wanted
Speaker 1: to ask you. You you talked about how this is
Speaker 1: the year that three D printing is going to go mainstream.
Speaker 1: What gives you confidence to say that? Well, I think
Speaker 1: if we trace where the investment in R and D
Speaker 1: has been going into we've seen an explosion on the
Speaker 1: venture capital side. In sixteen, we had more than a
Speaker 1: quarter billion dollars flow into startups UM, which was really
Speaker 1: outstripping the public markets for the first time. UM. We
Speaker 1: also have seen an incredible increase in M and a
Speaker 1: activity of d E snatching up to the largest metal
Speaker 1: companies UM. We've seen a large uptick in investments in
Speaker 1: that sector. And I think that we're starting to see
Speaker 1: this growth really being driven by the bottom up. If
Speaker 1: we look at what's happening like with Stratesis is outlook
Speaker 1: for seen and the public markets reaction, I think that
Speaker 1: the markets are in agreement that a lot of this
Speaker 1: growth is being driven by the small disruptive players that
Speaker 1: are moving quickly. Well, you mentioned Stratusis, and I mean, boy,
Speaker 1: if you're an investor in Stratusists, you have watched it
Speaker 1: move high and then move low. And in fact, they
Speaker 1: just released their results I guess it was on March
Speaker 1: the seventh, and while the results were great for the
Speaker 1: previous time period, their guidance and you know they were
Speaker 1: not giving the kind of guidance any of the stock
Speaker 1: ended up down about nine percent just that particular day.
Speaker 1: So it's been rough going for them. Uh, Shamille, I
Speaker 1: want you to just talk a little bit about your
Speaker 1: background because this was a kickstarter campaign, right, I mean
Speaker 1: that's how it all started. And now what you've managed
Speaker 1: to purchase the Souls I love this e Souls is
Speaker 1: a company that has a database of foot scans. Tell
Speaker 1: us what that gives you? Yeah? Absolutely? Uh, you know,
Speaker 1: to really build out this vision. What we're seeing in
Speaker 1: the market is the big players like Apple Intel and
Speaker 1: Google are spending Microsoft included are spending hundreds of millions
Speaker 1: and dollars and three D scan and they're gonna bring
Speaker 1: this to your phone very soon. And then you've got
Speaker 1: Carbon and Hewlett Packard and Stratusis and three D systems
Speaker 1: working on the printer engines. Now why this Soul's acquisition
Speaker 1: was important for us? Is it meant that we now
Speaker 1: have a bigger database of three D scans that we
Speaker 1: can feed to train our technology to take that scan
Speaker 1: and turn it into an STV STL file more efficiently.
Speaker 1: That's the file format most pree in three D printing today.
Speaker 1: And so that's really more new that fifty thousand scans
Speaker 1: of three D scans of your feet would be worth
Speaker 1: that much on it Well, well, Tyler, though, I wanted
Speaker 1: to ask that that brings me to the next question,
Speaker 1: which is where does the real money lie. Is it
Speaker 1: in the programming behind the three D printers? Is it
Speaker 1: in the actual machines that can take the technology and
Speaker 1: make it into uh, make it into action? Where does
Speaker 1: it go? So today it's very much on the material side.
Speaker 1: It's the razor razor blades model, where if you look
Speaker 1: at the margins and industry. We see margins as high
Speaker 1: as a thousand percent on the raw feedstock, which is
Speaker 1: pretty incredible considering most manufacturing margins. However, I think in
Speaker 1: the long term, as the patent landscape has started to
Speaker 1: shake out in competition has really increased, we're going to
Speaker 1: see the long term margins on three D printing drop
Speaker 1: to about two to three, which is the manufacturing standard.
Speaker 1: I think that much of the VIA will be captured,
Speaker 1: as we've seen in electronics, by the design. So companies
Speaker 1: are really going to be able to command high premium
Speaker 1: if they have a proprietary sort vertically integrated, and end
Speaker 1: experience that is really i P driven design. If I
Speaker 1: may just echo what Tyler said, you know, one thing
Speaker 1: hasn't changed, making a product that people want and then
Speaker 1: marketing that product that that hasn't changed fundamentally. So for
Speaker 1: us as we've we've even learned that as we've gone
Speaker 1: about what we're doing. It was one thing to figure
Speaker 1: out the technology, but it was another thing to build
Speaker 1: the market and have people realize you can actually get
Speaker 1: these end products. And so having the brand in the
Speaker 1: in the market and having a product people want is key.
Speaker 1: Thank you so much for joining us. This is really interesting.
Speaker 1: Tyler Benster, general partner at Asthma Ventures in Seattle, Washington.
Speaker 1: Here with us in our Bloomberg eleven three studio. Also
Speaker 1: with us Shamil Hargovan, co founder and CEO of We've
Speaker 1: in San Diego, California. I am so excited about our
Speaker 1: next guest. He is a long time UH person who
Speaker 1: I have looked up to tremendously cast Sunseen Harvard Professor,
Speaker 1: Bloomberg View contributor and author of hashtag Republic, Divided Democracy
Speaker 1: in the Age of Social Media. UH. He comes to
Speaker 1: us now casts. Thank you so much for joining us UH.
Speaker 1: This the premise of this book is fascinating that basically
Speaker 1: the new challenge to democracy is the way that increasing
Speaker 1: technology is allowing people to sort of live in their
Speaker 1: own bubbles without getting exposure to one another. Can you
Speaker 1: explain what drew you to this and and how severe
Speaker 1: this problem was as you found? Well, I guess I've
Speaker 1: been drawn to it since the beginning of the Internet,
Speaker 1: when you could see that the UH capacity for people
Speaker 1: to sort themselves and little kind of mirrors where they're
Speaker 1: just looking at mirrors of oneself or people who have
Speaker 1: the same view as oneself at least, that capacity just skyrocketed.
Speaker 1: And in the recent past we've seen it in the elections,
Speaker 1: of course, but also in political discussion that would say
Speaker 1: spook and Twitter. And of course, with your ability to
Speaker 1: just scoot from one congenial view to another, you can
Speaker 1: just hear topics and points of view that make you
Speaker 1: feel like you're in a cozy little cocoon. And that's
Speaker 1: uh comforting cocoons are, but it's also a form of
Speaker 1: prison for individuals and for democracy. It's it's a danger,
Speaker 1: uh ms Sunstein. I wonder if you could just give
Speaker 1: us a little bit of your historical perspective, because I
Speaker 1: note that you know, in September two thousand nine, you
Speaker 1: were confirmed as the director of the White House omb
Speaker 1: Office of Information and Regulatory Affairs. Uh. This is an
Speaker 1: important agency, and I'm wondering if you could just describe
Speaker 1: its work and what you see happening to the current
Speaker 1: Office of Information and Regulatory Affairs. And as much as
Speaker 1: President Donald Trump has asked for agency wide reviews to
Speaker 1: reduce regulations, sure so the goal of the office, which
Speaker 1: goes back to President Reagan, is to oversee environmental regulation,
Speaker 1: safety regulation, labor health, lots of stuff, including some national
Speaker 1: security stuff, and to make sure basically it's consistent with
Speaker 1: the law that the costs are under control and the
Speaker 1: benefits justify the costs. So it's not the most visible office,
Speaker 1: but it is an office that has a pretty central
Speaker 1: role in affecting things that affect people every day. UM.
Speaker 1: Under President Trump, it could go in two different directions
Speaker 1: where still at early days, UH, there's some signs of
Speaker 1: kind of making sure that if we're going to be
Speaker 1: issuing new regulations in an economically challenging time, they really
Speaker 1: survive some sort of hurdle of justification. And that's accompanied
Speaker 1: by an idea if you're going to issue one, you
Speaker 1: have to get rid of too. Now, in principle that's
Speaker 1: not the best idea in the world, because you may
Speaker 1: have one good one and not too bad ones to
Speaker 1: get rid of. But in practice, UH, the people in
Speaker 1: the Office of Information Regulatory Affairs, I think they can
Speaker 1: make it work, certainly for a year or two. So
Speaker 1: one direction is just have a lot of discipline about
Speaker 1: new regulations going out. UH. And I would favor that
Speaker 1: that's continuous with a lot of things I've worked on
Speaker 1: when I was there, and Another direction, which isn't so
Speaker 1: good is what has been referred to as the deconstruction
Speaker 1: of the administrative state. Probably some people nod their heads
Speaker 1: when they hear that word, even though it comes from
Speaker 1: a French literary theorist who, Uh, the critics of the
Speaker 1: administrative state don't like so much the French literary people. Um,
Speaker 1: but I think nodding the head isn't a very good
Speaker 1: idea because there's UH safety regulation that prevent deaths on
Speaker 1: the highways, their safety regulation that make sure our food
Speaker 1: is safe, and there's UH safety regulation that makes sure
Speaker 1: that our error is clean to breathe, and deconstruction of
Speaker 1: the administrative state wouldn't be the best idea. So there's
Speaker 1: a long way of saying, Uh, Trump administration could go
Speaker 1: in one of two directions, and the first direction isn't
Speaker 1: so bad. You know. I want to go back to
Speaker 1: the point that you're making about people sort of seeing
Speaker 1: themselves in mirrors or seeing their ideas just in mirrors,
Speaker 1: and how that, I mean arguably has dictated what we
Speaker 1: are seeing right now in the current political cycle. Uh
Speaker 1: that's my extrapolation, not necessarily yours, but uh, but I'm
Speaker 1: wondering how much are you seeing that in academia, because
Speaker 1: you know what people think of uh institutions, academic institutions
Speaker 1: being a bastion of of thought and in conversation. But
Speaker 1: often there isn't a lot of diversity of views even
Speaker 1: among the professors. Well, I don't see a whole lot
Speaker 1: in academia, I confess, but that this may be my
Speaker 1: limited travels. So I spent a long time at the
Speaker 1: University of Chicago, and if you go through a day
Speaker 1: without hearing twenty different views, you're probably just staying in
Speaker 1: your office. UH. And the universities, even though they're often
Speaker 1: reputed to be echo chamber areas, UM my own experience,
Speaker 1: as I say, is as they just aren't. So some
Speaker 1: of the places that are supposed to be left the
Speaker 1: center and kind of Obama territory, there are people who
Speaker 1: think that Obama was awful and you know, and that
Speaker 1: the Trump direction is much better, and then we need
Speaker 1: some conservatives in charge. And there are places that are
Speaker 1: supposed to be conservative bastions where there are people who say,
Speaker 1: you know what, the Democrats have some really good ideas.
Speaker 1: So I think it's a problem in the political domain
Speaker 1: where people self stored into little cocoons, and they regard
Speaker 1: their fellow citizens as traders or enemies or you know,
Speaker 1: deeply confused or in the crip of lies. That seems
Speaker 1: to me a much more serious problem than what the
Speaker 1: professors are doing. Do you have any hope that the
Speaker 1: situation will improve where people will seek out views the
Speaker 1: disagree with their own. Well, one of the great things
Speaker 1: about our country is that we're not hopeless, and that's
Speaker 1: meant has a pun. It's first, we're not pessimistic, and second,
Speaker 1: we have capacity to put the future in our own hands.
Speaker 1: That's what we the people did a long time ago,
Speaker 1: and we've that repeatedly since. So the fact is that
Speaker 1: what our communications world is is if it's a world
Speaker 1: of self sorting where we uh, you know, just learned
Speaker 1: a single thing about civil rights, let's say that maybe
Speaker 1: not be true or at least is in the full picture,
Speaker 1: or we learned a bunch of different things, depends on
Speaker 1: our own choices, both as individuals and people are providing
Speaker 1: the stuff. So I think that there are some good
Speaker 1: signs that Facebook is reassessing it's a news feed. It's
Speaker 1: news feed is really an echo chamber generator in my view,
Speaker 1: and it's reassessing that, so we're going to see some
Speaker 1: changes on the individual side and on the provider side
Speaker 1: in the next few years. Thank you very much for
Speaker 1: spending time with us. Professor Cass Sunstein is a Bloomberg
Speaker 1: View contributor. He's also a professor at Harvard University. His
Speaker 1: new book is entitled Hashtag Republic, Divided Democracy in the
Speaker 1: Age of Social Media shares a mobile I are hired
Speaker 1: by nearly thirty percent. This comes after the announcement that
Speaker 1: Intel will pay fifteen billion dollars for this technology company.
Speaker 1: It provides vision based advanced driver assistance systems. This is
Speaker 1: everything from lane and vehicle detection, adaptive cruise control, traffic
Speaker 1: sign recognition. Here to tell us more on en trine
Speaker 1: of us in our senior Semiconductor and Hardware analyst for
Speaker 1: Bloomberg Intelligence, he never takes his hands off the wheel
Speaker 1: on on. Thank you so much for giving us your time.
Speaker 1: I know on your well learned holiday, but I want
Speaker 1: to get your thoughts on what is it about a
Speaker 1: company that has three hundred and sixty million in sales
Speaker 1: getting bought for fifteen billion dollars. Can't you do a
Speaker 1: lot with fifteen billion they certainly can. You can build
Speaker 1: the new fab and then some UM. But look, this
Speaker 1: is the future of semi conductors, right. I mean, if
Speaker 1: you look at the handset market, it's slowing. If you
Speaker 1: look at the PC market, it's slowing. The server market
Speaker 1: is more competitive and that's slowing as well. So everybody's
Speaker 1: all um UM driving fans UM towards the auto semic
Speaker 1: conductor market. But the promise that it is large, it
Speaker 1: is profitable, and it is fast growing. Now with autos,
Speaker 1: there's a special tweak in in that you whatever design
Speaker 1: winds that you have, if you get into a car
Speaker 1: with a new system, you don't see revenues for a
Speaker 1: couple more years because it has to be tested extensively
Speaker 1: before products are shipped out. It's very different from consumer electronics.
Speaker 1: So the thirteen UM revenue that they're playing forty three
Speaker 1: times Stralian common sales UH, it's obviously growing very fast,
Speaker 1: but the true growth potential of that is not going
Speaker 1: to be visible for several years UM. And that's part
Speaker 1: of the issue because we're not going to be able
Speaker 1: to see it. The gross margins are better than that
Speaker 1: the Intel of Intel, and it's UM it's in a
Speaker 1: segment that you can't easily design your way into. So
Speaker 1: many is uh is the smart route and mobilize a
Speaker 1: great company. But the question is you know you're right?
Speaker 1: Did they do they overpay? We? We won't know to
Speaker 1: be quite on it for five years. Well, so, can
Speaker 1: you give us a sense of just how competitive the
Speaker 1: landscape is for becoming sort of the data provider of
Speaker 1: the system provider for autonomous cars? I mean, it seems
Speaker 1: like Intel is trying to position itself to be the
Speaker 1: number one provider of that type of of data system
Speaker 1: and technology technological system. But who are its competitors and uh,
Speaker 1: what's the sort of market share potentially look like down
Speaker 1: the line. Yeah, it's that's that's a great question, and
Speaker 1: it's got a cloudy two part answer, which is one
Speaker 1: is that the architecture of technology in cars, it's help
Speaker 1: is changing. Companies like in Vidia and now inte are
Speaker 1: pitching for quote unquote um the guard box or the
Speaker 1: one system to rule at all in the auto right,
Speaker 1: So they want all auto technologies to coalesce around one
Speaker 1: intelligent system it's artificially intelligent or talks to the data
Speaker 1: center and will take you from point A to point
Speaker 1: B with as little human intervention as possible. That's the
Speaker 1: utopian scenario five ten years after. What exists now is
Speaker 1: a bunch of disparate systems with as many as thirty
Speaker 1: two and ten UM micro controller subsystems, anything from checking
Speaker 1: your oil levels to your tryer pressure to UM to
Speaker 1: seeing what the temperature is outside. And these systems don't
Speaker 1: necessarily all talk to one another, and there's no central
Speaker 1: um intelligent control points. So that's what it is today.
Speaker 1: Companies like in Video, potentially Tesla, potentially Intel now are
Speaker 1: all coalescing towards the future. It's a much slower market
Speaker 1: to turn UM, particularly in advanced driver system systems that
Speaker 1: that that everybody is pitching. The The number of things
Speaker 1: that we need to do between here and the truly
Speaker 1: driverless car is many, many, many, many folds. But here's
Speaker 1: the flip site. You know, we sell roughly about eighty
Speaker 1: million cars a year, and and each of those cars
Speaker 1: contained somewhere in the the intern eighty dollars of silicon
Speaker 1: that could go substantially higher, two, three, four or five
Speaker 1: times higher based on whether it's a driverless car or
Speaker 1: it's a semi driverless car. UM and so that's the
Speaker 1: utopian scenario, and it becomes very very sticky. It's high
Speaker 1: margin business is sticky business. Um, it's not as volatile
Speaker 1: as the conserveral times. And that's me intell pitch. Here's
Speaker 1: another utopian scenario. How about if you go public three
Speaker 1: years ago, you raise a billion dollars and you have
Speaker 1: a market cap of a little bit more than five billion.
Speaker 1: Fast forward three years you sell out for fifteen billion UM.
Speaker 1: Pretty nice chunk of change for the thunders. It's so great,
Speaker 1: why are they selling? Look, I mean there's a point
Speaker 1: to be made with respect to scale. If you look
Speaker 1: at the semikinnecter industry in general, it is become one
Speaker 1: of scale in terms of design, one of scale in
Speaker 1: terms of factories, and one in terms of touch. Small
Speaker 1: semiconductors companies in most spaces will become UM an oxymoron.
Speaker 1: It's going to be very very tough to exist if
Speaker 1: you don't have scale. Um, you're going to find it
Speaker 1: very hard to compete with the likes of n XP,
Speaker 1: which is now being acquired by Quantcom, which in fact
Speaker 1: box free scale, which is the number one auto supplier.
Speaker 1: So um, you're going to find it very very difficult
Speaker 1: to compete with these beheamoth from an R and D perspective,
Speaker 1: and for more, boy they're thinking, is that I get
Speaker 1: a big R and D partner with Intel right an
Speaker 1: on Street of Austin. Thank you so much for joining us.
Speaker 1: He's senior Semiconductor and Hardware analyst for Bloomberg Intelligence. Thanks
Speaker 1: for listening to the Bloomberg P and L podcast. You
Speaker 1: can subscribe and listen to interviews at iTunes, SoundCloud, or
Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm out
Speaker 1: there on Twitter at pim Fox. I'm out there on
Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You
Speaker 1: can always at catch us worldwide on Bloomberg Radio