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Speaker 1: Bloomberg Intelligence with Scarletfoo and Paul Sweeney on Bloomberg Radio,
Speaker 1: YouTube and Bloomberg Originals.
Speaker 2: On today's Bloomberg Intelligence Show, we dig inside the big
Speaker 2: business story is impacting Wall Street and the global markets.
Speaker 3: Each and every week we provide in depth research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries are analysts covered worldwide.
Speaker 2: Today, we'll look at why the chip giant Envidia invested
Speaker 2: two billion dollars more in the AI cloud computing startup
Speaker 2: Core Week.
Speaker 3: Plus a look at why a turnaround planet the coffee
Speaker 3: giant Starbucks is starting to take hold.
Speaker 2: But first we begin in the auto sector this week,
Speaker 2: General Motors release earnings that eat analysts expectations.
Speaker 3: The company also said it expects profits to grow as
Speaker 3: much as two billion dollars this year and plans to
Speaker 3: return more of that money to shareholders with a higher
Speaker 3: dividend and buybacks for.
Speaker 2: More We were joined by Steve Man Bloomerg Intelligence, Global
Speaker 2: Autos and Industrials analyst.
Speaker 3: We began by asking Steve to break down GM's EV
Speaker 3: versus gas engine portfolio.
Speaker 4: Oh, it's actually ice engine is much greater. I know
Speaker 4: they have a full portfolio of EV's, but you're talking
Speaker 4: about like eighty five ninety percent ICE versus ten fifteen
Speaker 4: percent evs. So you know they do have a big portfolio,
Speaker 4: but it was just at the beginning of rolling them out.
Speaker 4: You know, they do have still they do still have
Speaker 4: one more major rollout coming out, which is the Chevy
Speaker 4: Bolt of smaller vehicles, which the industry and GM thinks
Speaker 4: that that's where the market is going, a cheaper, more
Speaker 4: convenient ev Steve.
Speaker 2: It's almost to the point where the street rewards these
Speaker 2: companies if they not just not fully back away, but
Speaker 2: at least slow down the evolution to evs and just
Speaker 2: focus on what's making money today? Is that kind of
Speaker 2: what where the industry is today?
Speaker 4: Yeah, exactly, like Trump actually did the auto industry a
Speaker 4: major favor by relaxing the miles per gallon the mandate.
Speaker 4: So basically every vehicle in the Big Three's portfolio are
Speaker 4: currently meeting those mandates. And what it means is less
Speaker 4: penalties right and no need to buy EV credits going forward,
Speaker 4: huge savings. And what that means is it could translate
Speaker 4: into a slower increase in car prices for consumers, especially
Speaker 4: for big trucks. Makes the big trucks a lot more
Speaker 4: attractive to sell for the Big Three, So they're going
Speaker 4: to sell as many as possible given this opportunity. I
Speaker 4: know we talked about hybrid for GM, it's going to
Speaker 4: be a huge a sinkhold for them if they invest
Speaker 4: in that technology today. So let's let's not do that.
Speaker 4: Maintain whatever they can do with evs and really push
Speaker 4: the ice vehicles.
Speaker 3: Maintain what they can with ev so that you know,
Speaker 3: small ten to fifteen percent of their overall portfolio. Forget
Speaker 3: about hybrids and just focus on the mammoth gas guzzling vehicles.
Speaker 3: What happens then if gas prices do turn up higher unexpectedly,
Speaker 3: and I know that the administration is doing all it
Speaker 3: can to prevent that from happening. But I'm looking at
Speaker 3: triple A gas prices and they bottomed at around two
Speaker 3: seventy nine and have now made their way back up
Speaker 3: towards two ninety.
Speaker 5: Yeah.
Speaker 4: I mean historically, when gas prices go up, it does
Speaker 4: impact ice sales, and you know, it may it may
Speaker 4: push some buyers into evs, you know, depending on how
Speaker 4: how where the expansion of the EV charging network is at.
Speaker 4: But I think at the end of the day, if
Speaker 4: gas prices do go up, actually benefits the Japanese companies
Speaker 4: like Toyota and Honda, where they have a full suite
Speaker 4: of hybrid vehicles that actually consumer love.
Speaker 3: Yeah.
Speaker 2: I just leased the Honda CRV hybrid. Uh huh, my son,
Speaker 2: your drives in California all the time where the gas is.
Speaker 3: Really expert Yes, that's right. He probably wanted it. And
Speaker 3: how often does he have to fill up?
Speaker 2: Not that often? I mean, just not that often. It's great,
Speaker 2: it's a great tech technology.
Speaker 1: Steve.
Speaker 2: Let's just while we got you here, what's the call
Speaker 2: these days on Tesla as we talk about this EV business?
Speaker 2: But really, for Tesla, we're talking about so so much more.
Speaker 4: Yeah, looking at GM as a as a backdrop, you
Speaker 4: know GM's earnings for twenty twenty six is probably a
Speaker 4: little bit light. There's probably some more upside on the
Speaker 4: shift mix for more ice. So what means for Tesla
Speaker 4: it's an uphill battle for them. I know the stock
Speaker 4: is trading, you know, at an astronomical valuation at the moment.
Speaker 4: Investors are very focused on their robo taxi, this vehicle
Speaker 4: build out. Uh. They people feel that, you know, they
Speaker 4: can actually outcompete the likes of Uber and Lyft. So
Speaker 4: you know, sales will be weak in the fourth quarter
Speaker 4: for Tesla, but I believe the you know, the investors
Speaker 4: are actually looking over past that into you know, what
Speaker 4: is the what is the catalyst or what is what
Speaker 4: is Elon Musk going to talk about in their next
Speaker 4: earning calls on the Robotaxi.
Speaker 3: Yeah, it's always about the Elon Musk narrative, his vision
Speaker 3: going forward of what this company is going to be.
Speaker 3: I wonder, you know, my Mary Barrow talked about the
Speaker 3: charging infrastructure in the network and how we're not there
Speaker 3: in the United States. Tesla is offering the supercharger and
Speaker 3: that's part of its business model to be able to
Speaker 3: make that charger available to other automakers. How big a
Speaker 3: contributor is that to its revenue, to its profitability when
Speaker 3: it's prob.
Speaker 4: Yeah, it's still it's still a small amount. It is. Uh.
Speaker 4: What they do is they want to expand that business.
Speaker 4: So they are talking to you know, gas stations like
Speaker 4: wah wah out in Pennsylvania are actually you know, buying superchargers,
Speaker 4: installing it into next to the gas pumps and next
Speaker 4: to the stations. So they are trying to expand it
Speaker 4: in terms of charging, selling these supercharging business and in
Speaker 4: the in the revenues from the charging, it's still really
Speaker 4: really small. I would say around ten percent, maybe less.
Speaker 2: Hey, what do we know about how important are incentives here?
Speaker 2: I look at other countries around the world and they
Speaker 2: have got these huge EVY percentages of China sales China,
Speaker 2: the Nordic countries. How important are government incentives to get there?
Speaker 2: It is very important.
Speaker 4: I think the Germans are actually putting back the incentives
Speaker 4: and it has lifted ev sales in Europe, in Germany.
Speaker 4: But at the end of the day, you really want
Speaker 4: to build a sustainable growth environment for these cars, and
Speaker 4: Mary Barr is right. You know, we actually publish a
Speaker 4: very extensive report on ev charging, comparing charging network in
Speaker 4: the US versus China night and day, right, So you know,
Speaker 4: it's about convenience, it's about costs for the US consumer.
Speaker 4: It's great to have it's great for consumer to have
Speaker 4: some subsidy, you know, help pay for the for the
Speaker 4: cars that they're buying. But I think long term, you know,
Speaker 4: it really needs the consumer to really buy into the product.
Speaker 2: Thanks to Steve Man, Bloomberg Intelligence Global Autos and Industrials
Speaker 2: analyst return next to some news in the aerospace industry
Speaker 2: this week.
Speaker 3: American Airlines projected revenue growth for twenty twenty six, but
Speaker 3: said that the winter storm that raged across the US
Speaker 3: this week will clip revenue this quarter.
Speaker 2: We also heard from jetbou Airways, who reported a wider
Speaker 2: loss than expected last quarter, highlighting challenges a strategy to
Speaker 2: win over higher paying customers.
Speaker 3: For all of this, as well as other news in
Speaker 3: the aerospace industry, we were joined by Sid Phillip. He
Speaker 3: has Bloomberg's chief correspondent for Global Aviation. We began by
Speaker 3: asking Sid for his take on American and Jet Blue's
Speaker 3: recent results.
Speaker 5: So the airline industry is actually in a sort of
Speaker 5: bit of a flux at the moment. I mean, you've
Speaker 5: obviously had the impact of all these storms, you've had
Speaker 5: the impact of the government shutdown, and you've got the
Speaker 5: uncertainty about the year ahead. And so American Airlines is
Speaker 5: taking a more bullish view of the year ahead. They're
Speaker 5: sort of following their peers United and Delta in targeting
Speaker 5: the most premium end of the spectrum, and they're sort
Speaker 5: of hoping that by aiming their product at the premium
Speaker 5: end of the market, they can sort of offset the
Speaker 5: sort downturn that's happened in the bottom end of the market.
Speaker 5: Jet Blue also talking about how at the moment things
Speaker 5: look a bit shaky, but they're talking about how they
Speaker 5: see a road to profitability and a free cash flow
Speaker 5: by the end of twenty twenty seven, and so slightly
Speaker 5: more long term view of when the recovery might happen.
Speaker 5: And that sort of explains the dichotomy in the earnings
Speaker 5: forecast for both these companies.
Speaker 3: And of course Jeblue is also doing what it can
Speaker 3: to premium premiumize if that's a verb, it's experience for
Speaker 3: customers to with absolutely opening up that new lounge and JFK.
Speaker 3: So that is the story with airlines, and it's been
Speaker 3: fairly consistent too with what we heard from Delta and United.
Speaker 3: Where does that leave the smaller carriers that need to
Speaker 3: either team up or fade into oblivion. I'm thinking Spirit,
Speaker 3: I'm thinking Frontier. Is there still a market for these
Speaker 3: discount carriers?
Speaker 5: So the market at the moment is very tough for
Speaker 5: the discount carriers. So essentially what's happening is that the
Speaker 5: top end of the market is going to Delta and
Speaker 5: United for their premium products like first class in business class,
Speaker 5: and on the other end of the market you have
Speaker 5: sort of everyone else competing to get the lowest cost
Speaker 5: tickets into the hands of the passengers, and that sort
Speaker 5: of eroding margins, especially as costs for both pilots and
Speaker 5: Cavin Krue are hurting the ultralo cost carriers and the
Speaker 5: low cost carriers, and sort of that's sort of been
Speaker 5: explained by this gay shaped recovery that airline executives are
Speaker 5: talking about, and so Jet Blue and the others are
Speaker 5: sort of trying to get the premium end of it.
Speaker 5: I mean, we've seen even Spirit Airlines talking about how
Speaker 5: they're adding a so called business class product. They've added
Speaker 5: Wi Fi, They've added all sorts of things to keep
Speaker 5: people coming back to them, and so they're hoping that
Speaker 5: by slightly differentiating themselves from just very commoditized ultra low
Speaker 5: cost carriers, they can be able to get in those customers.
Speaker 2: Well, then it kind of goes back to the point,
Speaker 2: is there a need for her real true low cost
Speaker 2: carrier out there? Are some of these supposed ones are
Speaker 2: going kind of mid market higher market. Is there a
Speaker 2: market demand for that or is everybody just willing to
Speaker 2: pay up for travel?
Speaker 5: At the moment, it looks the people who are willing
Speaker 5: to pay up for travel are the people willing to
Speaker 5: pay up for travel, and so at the bottom end
Speaker 5: of the market. I mean, everyone talks about how there
Speaker 5: will be a recovery of the ultralocost carrier years and
Speaker 5: that once people are more certain about the economy, and
Speaker 5: once people at the bottom end of that k start
Speaker 5: to see some stability in the economy, people will travel
Speaker 5: because I mean, remember during the pandemic, there was after
Speaker 5: as we exited the pandemic, there was this boom in
Speaker 5: travel for across the board and that sort of has
Speaker 5: further split up, and so we will see that demand
Speaker 5: coming back, we just don't know when and what sort
Speaker 5: of shape that will be.
Speaker 3: So sid you also cover Boeing, and it came out
Speaker 3: with its results and in terms of the numbers for
Speaker 3: the fourth quarter free cash flow topping estimates, it generated
Speaker 3: cash for a second straight quarter. That sounds like it's
Speaker 3: good news. How far along this recovery, this long awaited
Speaker 3: covery is Boeing Actually.
Speaker 5: So Boeing is on the road to recovery. They're still
Speaker 5: not they yet, but they are recover They are recovering.
Speaker 5: I mean their fourth quarter results and their Follio results
Speaker 5: were boosted by the sale of their Jefferson Digital Aviation
Speaker 5: subsidiary and that sort of gave them a nine point
Speaker 5: six pl in the dollar boost. And at the same time,
Speaker 5: the Boeing is sort of ramping up production. They are
Speaker 5: ramping up sales. I mean they've seen a surgeon sales.
Speaker 5: I mean in the last ever since the Trump administration
Speaker 5: came in, we've seen a surgeon Boeing sales. And so
Speaker 5: Kelly Ottberg, the new CEO, is sort of pushing Boeing
Speaker 5: to improve production, ramp up production at a steady base.
Speaker 5: I mean they've gone to about forty two seven three
Speaker 5: seven max jets a month, and they are sort of
Speaker 5: further boosting those production numbers and that will get them
Speaker 5: on at the sort of where they want to be
Speaker 5: in the Kelly Outberg's talked about how ten billion in
Speaker 5: free cash flow is his target and the company's on
Speaker 5: its way there.
Speaker 2: Thanks to Sid Phillip Bloomberg Intelligence senior Aerospace, Defense and
Speaker 2: Airlines analysts coming up a.
Speaker 3: Look at why the wireless provider AT and T posted
Speaker 3: fourth quarter profit and revenue do beat Wall Street estimates.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 2: hundred and thirty industries.
Speaker 3: You can access Bloomberg Intelligence via bi go on the terminal.
Speaker 2: Scarlet Foo and I'm Paul Sweeney, and this is Bloomberg.
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
Speaker 1: on Bloomberg Radio.
Speaker 2: We moved to some news in that tech space this week.
Speaker 3: We heard that the CHIPDRII and Vidia invested an additional
Speaker 3: two billion dollars in the a cloud computing startup core Weave.
Speaker 2: As part of the collaboration, core Weef will be among
Speaker 2: the first to deploy forthcoming Nvidia products.
Speaker 3: We brought in on our Granda Bloomberg Intelligence tech analysts
Speaker 3: to tell us more.
Speaker 2: We first asked an A Rock for his reaction to
Speaker 2: this deal.
Speaker 6: If you go back in history and see when Cordeviev
Speaker 6: was going public, it was having a hard time getting
Speaker 6: a good pricing, and then Nvidia kicked in and said,
Speaker 6: you know, we're going to be a part of this
Speaker 6: particular IPO. And I think what's happening here is this
Speaker 6: and Vidia is creating the chips, and Codeviev is helping
Speaker 6: them sell the computing using those chips. Two different public
Speaker 6: that's out there now. At this time, Codeviev has a
Speaker 6: massive backlog of ordos, but it needs to get funding
Speaker 6: done in order to convert that into data centers and
Speaker 6: then capacity. Now you know, in Vidia isn't giving them
Speaker 6: money straight away, but it's basically saying, you know, we
Speaker 6: have confidence in this in this company, and it would help.
Speaker 6: Then code We've go out and raise capital from outside.
Speaker 6: So I think it's a little bit more like spreading
Speaker 6: the Nvidia ecosystem is what that's happening right now.
Speaker 2: Looking at your research note, note that Coreweve has fifty
Speaker 2: billion dollars in remaining performance obligations. What does that mean?
Speaker 6: Yeah, basically it says this is kind of the contracted
Speaker 6: revenue they have on hand, which means, you know, Microsoft
Speaker 6: has said, you know what, I'm good for ten out
Speaker 6: of that. For example, Meta has a deal with them,
Speaker 6: so they have this backlog of all these orders. But
Speaker 6: you know, unlike other companies, you just can't go out
Speaker 6: and fulfill the demand. You have to create a very
Speaker 6: large data centers using in Vidia chips. It then starts
Speaker 6: to work out or runs, and then you realize that
Speaker 6: fifty billion into revenue over the next several years.
Speaker 2: So what's the gating issue here for or Corewave? Is
Speaker 2: it more access to more data centers? What's kind of
Speaker 2: the gating issue for them to fulfill that revenue?
Speaker 6: Multiple gating factors. One is actually the data center itself.
Speaker 6: For that, you need land, you need power. You know,
Speaker 6: the chip side is okay at this point because in
Speaker 6: radio is there, but then also you need capital. I mean,
Speaker 6: code Weave is not a company like Microsoft or Amazon
Speaker 6: that has unlimited capital to create these data centers, it
Speaker 6: has to go in the market and raise capital. Before
Speaker 6: they went public, I mean their cost of capital was
Speaker 6: north of ten percent. Right now after they went public,
Speaker 6: I mean the cost of capital has gone down to
Speaker 6: about eight percent. But the entire neo clouds are in,
Speaker 6: whether it is code Weave or whether it is nebus,
Speaker 6: really depends on private credit lending or lending by other
Speaker 6: banks to really come up with the funding to create
Speaker 6: these data centers.
Speaker 2: So I also see that Microsoft unveil's latest AI chip
Speaker 2: to reduce reliance on in video. What's going on there?
Speaker 6: So this is something that's going on with all hyper
Speaker 6: scale cloud providers, you know, whether that's Google with its CPUs,
Speaker 6: Amazon with its chip, and now Microsoft launching I mean
Speaker 6: they have one chip, but the first generation was not
Speaker 6: you could say, did not do that well in terms
Speaker 6: of you know, reception from customers. What Microsoft is hoping
Speaker 6: here right now is, you know, for training, they'll still
Speaker 6: use the more powerful and video chips, but for you know,
Speaker 6: running let's say a co pilot, they could get around
Speaker 6: and use less powerful chips and big and if they
Speaker 6: do that, they actually save a lot of money. You know,
Speaker 6: in our math, we think if if Microsoft is going
Speaker 6: to spend you know, somewhere north of one hundred and
Speaker 6: forty billion dollars this year, more than fifty of that
Speaker 6: is going to go just buying chips, and so you know,
Speaker 6: it's it's a very big ticket for them, and they
Speaker 6: everybody needs to be doing this, frankly in house.
Speaker 3: Our thanks to Honor A. Grannap Bloomberg Intelligence Technology analyst.
Speaker 2: Move next to earnings from the coffee Chaine.
Speaker 3: Starbucks, and this week the company reported global sales at
Speaker 3: established locations whereas four percent in the most recent quarter
Speaker 3: that top to analyst estimates.
Speaker 2: For more I was joined Michael Halen, Bloomberg Intelligence Senior
Speaker 2: Restaurant and Food service analysts. At first they asked Michael
Speaker 2: to break down how CEO Brian Nichols turnaround plan is
Speaker 2: going at Starbucks.
Speaker 7: The turnaround plans are starting to really take a hold
Speaker 7: right now, and results really improved, rising, you know, four
Speaker 7: percent system wide same Star sales US as well. China
Speaker 7: was up seven percent. You know here in the US,
Speaker 7: it's you know, mainly about better operations, right They rolled
Speaker 7: out new operating standards late last year and that They
Speaker 7: seem to be really boosting the speed of service, which
Speaker 7: is creating happier customers that come back more frequently.
Speaker 4: Right.
Speaker 7: Some food innovation including protein cold foam seems to be
Speaker 7: hitting the mark right. And they're doing a better job
Speaker 7: on the marketing side. So all those are driving drove
Speaker 7: better Same Star sales than expected.
Speaker 2: Yeah, I don't know the one. I go to the
Speaker 2: Starbucks thirty five Wall Township, New Jery. They do a
Speaker 2: great job for me, and I've noticed the change. I mean,
Speaker 2: you know, little things like you know, writing your name
Speaker 2: back on the coup like they used to back in
Speaker 2: the early days. As in addition to that sticker which
Speaker 2: was a little antiseptic. I guess talk to us about
Speaker 2: costs there. Are they looking at their costs as well?
Speaker 7: Yeah, they they've identified two billion dollars in annual costs
Speaker 7: that they want to get after over the next one
Speaker 7: to two years. You know, Right now, margins have been impacted.
Speaker 7: They've gotten those same Star sales and traffic numbers up
Speaker 7: by adding labor to the stores, right, and so they're
Speaker 7: seeing margin compression still. So now that they got people
Speaker 7: coming back to the stores, now that the operations are
Speaker 7: more dialed in, you know, CEO Brian Nichol said, they're
Speaker 7: not quite where they need to be throughout the day.
Speaker 7: They're great at peak, but they have some improvement still
Speaker 7: to do. But you know, now that people are coming
Speaker 7: back to the stores, they're gonna you know, focus a
Speaker 7: little bit more on where where they can save some money,
Speaker 7: because you know, it was a smart move, real reallocating
Speaker 7: labor into the stores.
Speaker 2: But Costley talk to about the competitive environment because you
Speaker 2: go to like, I don't know, small towns, seems like
Speaker 2: there's a coffee joint on every corner of these days.
Speaker 2: What's the competitive landscape for Starbucks these days.
Speaker 7: Well, you know, it's as it's as competitive as it's
Speaker 7: ever been. You know, you have some of these younger
Speaker 7: chains that seem to do really well with gen Z,
Speaker 7: like Dutch Bros. And UH seven Brew, and they're they're
Speaker 7: opening up these drive through cans, you know, throughout the
Speaker 7: suburbs across America, you know, in the cities. You know,
Speaker 7: there's a lot of competition with these you know, very
Speaker 7: high end coffee shops that are you know, using very
Speaker 7: you know, very high quality coffee and offering an elevated
Speaker 7: food experience. So competition is tough, and that's why you
Speaker 7: know Starbucks is is making some changes. You know, they're
Speaker 7: focusing on on health and wellness, right They're looking to
Speaker 7: improve the food in the bake case there, looking to
Speaker 7: improve the food or throughout the day they're looking into
Speaker 7: some new innovative drink off rings to boost that afternoon
Speaker 7: day part. And so you know, this is just the
Speaker 7: beginning of what Starbucks, you know, things they need to
Speaker 7: do for long term continued same Star sales growth.
Speaker 3: Our thanks to Michael Halen, Bloomberg Intelligence Senior Restaurant and
Speaker 3: Food Service analyst, we.
Speaker 2: Moved next to the telecommunication space.
Speaker 3: This week. AT and T reported fourth quarter profit and
Speaker 3: revenue that beat analyst estimates.
Speaker 2: The results were fueled by customers who subscribed to more
Speaker 2: than one connectivity service. AT and T added more than
Speaker 2: a half a million fixed and mobile internet subscribers in
Speaker 2: the quarter.
Speaker 3: So we brought in John Butler, our senior telecom analyst,
Speaker 3: and began by asking John where AT and T stands
Speaker 3: relative to its rivals.
Speaker 8: Host the earnings call, they held a breakout session with
Speaker 8: the master relations with the cell side, and there were
Speaker 8: a lot of questions about how broadband, or how competition
Speaker 8: is now shifting from wireless over to broadband. I actually
Speaker 8: think AT and T is in a great position relative
Speaker 8: to their competitors because they're the fiber leader, and they're
Speaker 8: about to buy Luhmann's fiber business and add another million
Speaker 8: fiber subscribers there. So in terms of their ability to
Speaker 8: sell what are called converged packages or wireless together with broadband,
Speaker 8: they're in a great position there because they have both
Speaker 8: fiber and they have a smaller fixed wireless access business,
Speaker 8: which is that wireless broadband product.
Speaker 2: John, this is a cup of AT and T that
Speaker 2: spends twenty twenty two billion dollars in capex every year.
Speaker 2: What does that capex for?
Speaker 8: Typically a lot of it, Paul is going towards wireless
Speaker 8: network up grades as well as the deployment of fibers.
Speaker 8: So this year, for example, they're going to add five
Speaker 8: million new fiber homes, but it costs about two thousand dollars,
Speaker 8: maybe twice that in some markets to build a new
Speaker 8: what's called a fiber homes pass. So a lot a
Speaker 8: lot of capital is getting spent this year, next year,
Speaker 8: and maybe to a little bit of a lesser degree
Speaker 8: in twenty eight. That's sort of laying the foundation to
Speaker 8: build out that fiber network and that five G wireless network.
Speaker 8: Beyond that, AT and T has said we're going to
Speaker 8: cut our cap backs, We're going to lower our capital intensity,
Speaker 8: and you're going to see a lot more free cash
Speaker 8: flow flow through and they're going to be able to
Speaker 8: fund hopefully some dividend growth after that and increase the
Speaker 8: share buyback.
Speaker 3: Yeah. I'm looking at the dividend yield for AT and
Speaker 3: T four point six percent. For Verizon, it's almost seven percent.
Speaker 3: For Team Mobile a little bit less at two point
Speaker 3: nineteen percent, John, Where did the telecom stand when it
Speaker 3: comes to this rotation out of big tech looking for
Speaker 3: some cyclicals, looking for parts of the market that haven't
Speaker 3: been overbought.
Speaker 8: So it's a good question, Scorelett. I always say telecoms,
Speaker 8: particularly the dividend payers like AT and TM, rise in
Speaker 8: our bond proxies to a degree. I think sentiment has
Speaker 8: been pushed around a little bit by the fact that
Speaker 8: we have new CEOs at both Verizon and T Mobile,
Speaker 8: and these guys are going to be looking to make
Speaker 8: their mark. So there's been a little bit of concern
Speaker 8: or more than a little bit of concern that the
Speaker 8: competitive intensity and wireless is going to pick up as
Speaker 8: these new CEOs look to make their mark, and I
Speaker 8: think that has led to some of the pressure, particularly
Speaker 8: on AT and T, though again I think they put
Speaker 8: a lot of those concerns to rest with their by
Speaker 8: reiterating their fiber plans and laying out new free cash
Speaker 8: flow guidance.
Speaker 2: John on the competitive land front, where are the cable
Speaker 2: companies these days?
Speaker 8: They're struggling, Paul. I mean they're at a technology disadvantage
Speaker 8: in that they they're offering broadband over those legacy coaxial
Speaker 8: cable networks. They're doing what they can to upgrade the
Speaker 8: technology and increase speeds on those networks, but at the
Speaker 8: end of the day, fiber really is a superior product
Speaker 8: to everything else on the market, and fixed wireless access,
Speaker 8: which has been offered by the telcos has been a
Speaker 8: very popular choice given the fact that it's an easy setup.
Speaker 8: It's over the air, so there's very little problems with it.
Speaker 8: It's pretty much problem free. As broadband goes over time,
Speaker 8: it sort of has a headroom problem. It can't offer
Speaker 8: the same speeds as fiber. But through it all, cable
Speaker 8: is sort of flying underneath those two products, sort of
Speaker 8: you know, trying to compete with what is a legacy
Speaker 8: product in the market.
Speaker 3: John, did we learn anything from AT and t's results
Speaker 3: regarding iPhones and you know, consumers signing on for the
Speaker 3: latest version of the iPhone?
Speaker 8: So great question. It's very interesting AT and T over
Speaker 8: indexes to the iPhone. They have a lot more users
Speaker 8: than Verizon or Team because they had an early exclusivity
Speaker 8: deal when the iPhone first launched. They were asked about
Speaker 8: the foldable iPhone that's rumored to be coming out next
Speaker 8: year and whether that's really going to move the dial
Speaker 8: for them. Their answer to me was interesting, I didn't
Speaker 8: expect it, which is they've been tracking the performance and
Speaker 8: the sales of the foldables that they have available on
Speaker 8: the network on the Android side, and their expectation is
Speaker 8: that we won't see a huge bump in iPhone sales
Speaker 8: next year. I think time will tell. I actually think
Speaker 8: foldables are going to resonate well with people, and Android
Speaker 8: isn't always the best read through there. I think it's
Speaker 8: a different kind of user that's on the Android phone
Speaker 8: versus iPhone. But we'll have to see in the fall.
Speaker 2: Thanks to John Butler, Bloomberg Intelligence senior telecom analyst.
Speaker 3: Coming up a look at why the logistics company UPS
Speaker 3: says it expects to cut another thirty thousand jobs this year.
Speaker 2: You're listening to Bloomberg Intel Elegence on Bloomberg Radio pro
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Speaker 3: You can access Bloomberg Intelligence through Bigo on the terminal.
Speaker 3: I'm Scarlett Foe and.
Speaker 2: I'm Paul Sweeney, and this is Bloomberg.
Speaker 1: This is Bloomberg Intelligence with Scarlet Foo and Paul Sweeney
Speaker 1: on Bloomberg Radio.
Speaker 2: We move next to news from the logistics company UPS.
Speaker 3: This week, UPS forecast full year sales that beat analyst estimates.
Speaker 2: However, the company also said it expects to cut another
Speaker 2: thirty thousand jobs this year to raining cost and boost profitability.
Speaker 3: For more on this and the state of the shipping industry,
Speaker 3: we brought in Thomas Black. He's a Bloomberg opinion columnist.
Speaker 2: We first asked Thomas to give us his take on
Speaker 2: what we heard from UPS.
Speaker 9: UPS continues to shrink to become more profitable. That's the
Speaker 9: big takeaway there. They're reducing their Amazon business, and they're
Speaker 9: trying to retrench with more profitable packages, and that's probably
Speaker 9: a move away from some of the e commerce deliveries
Speaker 9: where the competition is fierce and there's lots of little
Speaker 9: companies that are out there competing.
Speaker 3: So how far along this journey of shrinking to become
Speaker 3: more profitable are they? Are we in the third inning?
Speaker 3: Are we in the seventh inning?
Speaker 9: This will be the last year of this, so I
Speaker 9: would say we're in the sixth inning heading toward the ninth.
Speaker 9: So after this year, Carol to May, the CEO at UPS,
Speaker 9: said we're going to be a leaner company and ready
Speaker 9: to grow. So it's going to be a little bit
Speaker 9: painful this year, she walked analysts through it. The first
Speaker 9: half is going to be more painful as they glide
Speaker 9: down from Amazon and they take some write downs and
Speaker 9: so forth. As you know, they retired their fleet of
Speaker 9: MD eleven's, which is this old plane that was assently
Speaker 9: had the crash. So they're going through all of this
Speaker 9: in the first half, and then the second half things
Speaker 9: should start to turn around. They're also they're not only
Speaker 9: shrinking their Amazon business, are shrinking their footprint, their facilities
Speaker 9: and the older ones are being retired and they're replacing
Speaker 9: those with new automated facilities, and that's going to allow
Speaker 9: them to lay off more union workers. So that big
Speaker 9: union contract where the teamsters push through a big labor
Speaker 9: increase is turning around to bite them a little bit
Speaker 9: because UPS is dealing with that by shrinking its workforce.
Speaker 2: How does this UPS strategy differ from that of fed X.
Speaker 9: They're similar in the sense that they're both cutting costs aggressively.
Speaker 9: Of fed X is a little bit different because it
Speaker 9: doesn't have the labor costs from the union workforce, so
Speaker 9: it's a little bit more flexible. And fed X is
Speaker 9: undergoing a major overhaul that's probably in its last innings
Speaker 9: as well. And the last part of that is the
Speaker 9: most difficult part, where they're going to combine their two
Speaker 9: separate networks, the ground network and express network. They're in
Speaker 9: the middle of that, but so they're going to be
Speaker 9: coming out of that as well. So we're going to
Speaker 9: have two parcel companies that are restructured and ready to
Speaker 9: grow at the end of this year.
Speaker 3: Every time there's some kind of headline regarding UPS laying
Speaker 3: off workers or cutting positions, it's in. It's these massive
Speaker 3: numbers right this time around. It's up to thirty thousand
Speaker 3: positions this year. And as you mentioned, Thomas, this is
Speaker 3: all due to trimming down and small downsizing the scope
Speaker 3: of the company. At what point are we looking at
Speaker 3: job cuts tied to AI or have we not got
Speaker 3: even gotten there yet?
Speaker 9: Well, I would instead of saying AI, I would say
Speaker 9: automation and that those are these new facilities that handle
Speaker 9: packages automatically. You even have the induction of packages where
Speaker 9: you have robots putting the packages on the conveyor belts
Speaker 9: and taking them off. So those are the steps toward
Speaker 9: more automation. This is that physical AI that people talk about.
Speaker 3: Right.
Speaker 9: An interesting stat that Carol to May gave on the
Speaker 9: cause that those automated buildings are twenty eight percent more
Speaker 9: efficient than the older buildings. So the more automation is
Speaker 9: where they're leaning into. So it's part of it shrinking
Speaker 9: some of the low profit volume plus more automation to
Speaker 9: replace the human workers.
Speaker 2: Basically, e commerce continues to grow, and I guess Double Digits,
Speaker 2: who's handling all these packages of ups, is maybe backing
Speaker 2: away a little bit.
Speaker 9: Well, Amazon has its own delivery network. It tends to
Speaker 9: want to deliver into those big urban areas where it
Speaker 9: just takes things from a warehouse to a residential home.
Speaker 9: So they do that very well. Where they want help
Speaker 9: is on the rural areas. That's where they turn to
Speaker 9: folks like UPS and the postal service. So obviously Amazon
Speaker 9: is a big player there. We'll also have lots of
Speaker 9: smaller companies. These are big type companies that have apps
Speaker 9: and workers show up and they have an app on
Speaker 9: their phone and it gives them a delivery route and
Speaker 9: they throw packages in their car or their truck and
Speaker 9: they go delivers. There's a lot of those companies that
Speaker 9: tend to operate in urban areas, so there's actually a
Speaker 9: lot of capacity out there for retailers or people who
Speaker 9: are really smart on their inventory management to tap into.
Speaker 3: That was Thomas Black, Bloomberg opinion columnist.
Speaker 2: We move now to a Bloomberg Big Takes story we
Speaker 2: recently focused on entitled Yale's endowment model falters at tough
Speaker 2: moment for universities. You can find it on Bloomberg dot
Speaker 2: com and the Terminal.
Speaker 3: So the story looks at how Yale bet on private
Speaker 3: equity and other I liquid investments, and now some of
Speaker 3: the wealthiest endowments, including Yale and others that follow the
Speaker 3: Yale model, are on the hook for hundreds of millions
Speaker 3: of dollars in new endowment taxes from the White House.
Speaker 2: Now universities are dumping private equity funds at discounts following
Speaker 2: years of poor returns, while public stocks have outperformed the
Speaker 2: asset class.
Speaker 3: For more, we brought in Janet Lauren Bloomberg's Higher Education
Speaker 3: finance reporter.
Speaker 2: You first asked Janet to break down what is happening
Speaker 2: with Yale's and down model.
Speaker 10: From time to time, We've seen that in certain years
Speaker 10: where simple just outperformed private equity and other VC And
Speaker 10: in twenty twenty one, remember the outstanding returns that these
Speaker 10: schools had, but now higher interest rates, fewer exits. You've
Speaker 10: got a huge amount of money locked up in private equity,
Speaker 10: in some cases forty percent. And you know, look, these
Speaker 10: schools would like a little cash. They're looking, you know,
Speaker 10: perhaps they want to change managers. They need the cash
Speaker 10: to do other things as well and refresh their portfolios.
Speaker 10: But when you have, you know, in the forty percent
Speaker 10: locked up, you know, time to think about other things.
Speaker 10: And that's perhaps why you saw Yale doing its first
Speaker 10: ever sale last year, which was a big deal.
Speaker 2: So again this sale, Yale unloaded about two point five
Speaker 2: billion dollars in LBO funds at a discount that is brutal. Well,
Speaker 2: is it unprecedented.
Speaker 10: Or other we Well, Yale has done it for the
Speaker 10: first time. You know, others had been doing this before.
Speaker 10: Harvard has unloaded a lot in previous years. But it's
Speaker 10: sort of a new normal in some ways looking at secondaries.
Speaker 10: The secondary market is very popular right now, and you know,
Speaker 10: they in the hunt for potential cash and liquidity. You know,
Speaker 10: you look at the UC Endowment where we talked about
Speaker 10: this eighty twenty they call it the Blue and Gold Fund,
Speaker 10: very proud of it, and in the height of the
Speaker 10: pandemic when they wanted some liquidity, they gave almost two
Speaker 10: billion dollars in cash to the campuses for liquidity. Compare
Speaker 10: that to two thousand and eight when schools were forced
Speaker 10: to sell on the secondaries or borrow. That's kind of
Speaker 10: a stark example right there.
Speaker 3: When you need money, when you need money, and I
Speaker 3: think that's a key phrase here, especially in twenty twenty six,
Speaker 3: because this White House has been targeting higher ed and
Speaker 3: even though Yale has not been targeted to the extent
Speaker 3: that Harvard has, for instance, or Columbia, these schools need
Speaker 3: money in a way that they didn't before, for nothing
Speaker 3: else to pay taxes on their endowment.
Speaker 10: Yes, and that's a huge game changer. You know, a
Speaker 10: year ago we may not be having this conversation. Yale
Speaker 10: and Harvard each had pegged their bill for the endowment tax,
Speaker 10: which is now eight percent of net investment returns, to
Speaker 10: be about three hundred million dollars a year.
Speaker 2: Wow. And is that enforced? Is that happening right now?
Speaker 10: Absolutely? That happened in July first, when the big beautiful ACCT.
Speaker 2: How about the the actual I guess halting payments to
Speaker 2: some of these universities that President Trump administration I've talked
Speaker 2: ab for some of their funding. Has that happened?
Speaker 10: So many schools have had settlements. Harvard famously has not yet.
Speaker 10: There was a lawsuit in last September. The district court
Speaker 10: ruled in favor of Harvard. Late December the government appealed.
Speaker 10: So that's still in flux. But there's a huge concern
Speaker 10: of Harvard in all universities. Are we still going to
Speaker 10: get this federal research funding going forward, and Harvard may
Speaker 10: have temporarily solved their problem, still very unclear, but what
Speaker 10: is the money going forward? School our universities, these large
Speaker 10: research universities still going to be able to count on
Speaker 10: hundreds of millions of dollars. You know, Northwestern, which settled
Speaker 10: around Thanksgiving, had been self funding their research the tune
Speaker 10: of something like thirty or forty million dollars a month.
Speaker 10: So we're talking, you know, lots and lots of money.
Speaker 3: Yeah, they need the money in a way that they
Speaker 3: didn't before. And going back to the Yell endowment strategy
Speaker 3: and how well it worked at least initially when David
Speaker 3: Swinson launched it back I think in the eighties and
Speaker 3: nineties those were the heydays of the Yell endowment model.
Speaker 3: Maybe it made sense when private equity, private investing was
Speaker 3: not a big thing yet, was not yet mainstream, or
Speaker 3: maybe it makes more sense on a low rate environment.
Speaker 3: But times have changed, and that's a big part of it.
Speaker 10: Right absolutely, first mover advantage. You know, there weren't as
Speaker 10: many institutional investors doing what he was doing. He was
Speaker 10: he saw inefficiencies in the market and he said look,
Speaker 10: this is what we can do. We have the ability
Speaker 10: to lock up money for a while. We're very long
Speaker 10: term investors. We invest in scent in for centuries. We
Speaker 10: can do this and they and it was extremely successful,
Speaker 10: and others tried to copy. Certainly more money piled into
Speaker 10: private equity, sovereign wealth funds, pension funds, foundations, and when
Speaker 10: you have a lot of money chasing returns, it just
Speaker 10: it just isn't a successful especially at this higher interest
Speaker 10: rate when there are fewer exits.
Speaker 2: What is the l model in terms of asset allocation?
Speaker 2: And is it dead now?
Speaker 10: Well, you know, we had the head of a very
Speaker 10: large pension fund say it's not dead. It's perhaps on
Speaker 10: life support, but it's you know, it's it's looking at
Speaker 10: inefficiencies in the market. Now. Typically Yale has not been
Speaker 10: a big investor in US equities, you know, timey share
Speaker 10: of you know, we don't know the details because unfortunately
Speaker 10: they stopped publishing their asset elogition when David Swentz had died.
Speaker 10: You know, a huge loss for me personally because it
Speaker 10: gave me some great insight. But they, you know, typically
Speaker 10: had a very very tiny investment in US equities Now
Speaker 10: look at the University of California, you know, eighty percent
Speaker 10: in global equities. But you know who is who are
Speaker 10: they trying to emulate? You know, some investor in Omaha
Speaker 10: who's been pretty successful, Yeah, you know, betting on America.
Speaker 3: Yeah, but just buying cheap index funds. I guess what's
Speaker 3: not immediately obvious to people is that an endowment is
Speaker 3: more of a fund of funds rather than just a
Speaker 3: fund like the UC fund, the Blow and Gold fund
Speaker 3: you were talking about. That's almost like a very basic
Speaker 3: personal account where you're just putting money into index funds
Speaker 3: and not dealing with it for a long time exactly.
Speaker 3: But Yale is like they're picking fund managers like it's
Speaker 3: very very complex.
Speaker 10: Well, it's actively managed. And Yale is very famous for,
Speaker 10: you know, having managers for ten or more years. They
Speaker 10: did a story maybe ten years ago that talked about
Speaker 10: the length of managers and it's often ten years. And
Speaker 10: you know, Yale very smartly came up with a new
Speaker 10: program they called the Prospect Fellowship, and they're looking for
Speaker 10: new talent. And we had a comment from a former
Speaker 10: Princeton manager who talked about, you know, they look for
Speaker 10: talent and they grow with them. So maybe a small
Speaker 10: allocation to a manager today think Hill House at Yale.
Speaker 10: It turns when they're successful into you know, billion dollar investments,
Speaker 10: and especially when they've done well. You know, you can
Speaker 10: grow with a successful manager and then all of a sudden,
Speaker 10: your allocations are much larger as you're growing with them,
Speaker 10: and that's what they're seeking, So that's sort of like
Speaker 10: a refresh for them.
Speaker 3: That was Janet Lauren, Bloomberg's Higher Education finance reporter.
Speaker 2: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
Speaker 2: providing in depth research and data on two thousand companies
Speaker 2: and one hundred and thirty industries.
Speaker 3: And remember you can access Bloomberg Intelligence b I go
Speaker 3: on the terminal. I'm Scarlett and I'm Paul Sweeney.
Speaker 2: Stay with us. Today's top stories and global business headlines
Speaker 2: are coming up right now.
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