WEBVTT - Ford’s CEO Sees Auto Prices Dropping 0:00:01.360 --> 0:00:05.720 This is Bloomberg Business Wait Inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.680 global business finance and tech news the Bloomberg Business Week 0:00:13.720 --> 0:00:18.960 podcast with Carol Messer and Tim Stenebek from Bloomberg Radio. 0:00:20.880 --> 0:00:24.040 It is for Capital Markets Day Today and Dearborn and 0:00:24.160 --> 0:00:26.840 having some fun and a I believe Coney Dog in 0:00:26.880 --> 0:00:30.920 downtown Detroit is her own Matt Miller radio and TV anchor, 0:00:31.000 --> 0:00:35.080 my co host at times, lever of all things, four wheels, 0:00:35.080 --> 0:00:37.440 two wheels and more that first of all, nice to 0:00:37.440 --> 0:00:40.200 have you here with justin myself. Where the heck are you? 0:00:40.200 --> 0:00:41.479 You look like you fit in. 0:00:41.479 --> 0:00:42.479 There, Coney. 0:00:42.960 --> 0:00:46.640 Anyone who's been to Detroit knows that the local food 0:00:47.000 --> 0:00:49.320 is a Coney Dog, right, which is basically a hot 0:00:49.320 --> 0:00:52.239 dog with chili on it. And there are really only 0:00:52.280 --> 0:00:56.240 two places to get those, the classic Coney's National Chili 0:00:56.280 --> 0:00:58.280 and then there's another chain that I won't mention while 0:00:58.280 --> 0:01:01.480 I'm in here. Nice, but yes, whenever I go to Detroit, 0:01:01.720 --> 0:01:04.960 I stop here first get my fix of Cony's, and 0:01:05.000 --> 0:01:06.720 then I go on and do whatever business I came 0:01:06.760 --> 0:01:07.160 here to do. 0:01:07.240 --> 0:01:08.480 I'm just going to tell you and get them at 0:01:08.520 --> 0:01:10.160 my kitchen too, because that's how my husband likes his 0:01:10.240 --> 0:01:12.760 hot dogs with chili on it. Okay, so tell us 0:01:12.800 --> 0:01:14.600 what you were in I mean, we know why you 0:01:14.640 --> 0:01:17.480 were in Detroit. You had some interesting conversations. 0:01:18.240 --> 0:01:18.440 Yeah. 0:01:18.440 --> 0:01:20.880 I had an interview with the CEO of Ford today 0:01:21.040 --> 0:01:25.000 and the reason that you know he invited me, along 0:01:25.040 --> 0:01:27.160 with the rest of his executive board and a ton 0:01:27.200 --> 0:01:30.520 of Wall Street analysts, is that Ford is trying to 0:01:30.560 --> 0:01:33.640 convince the Street that they can meet their goal of 0:01:33.680 --> 0:01:38.280 producing two million evs in twenty twenty six, and probably 0:01:38.319 --> 0:01:40.560 a lot more importantly, that they can actually make money 0:01:40.800 --> 0:01:43.559 on those evs, right, because they're slated to sell about 0:01:43.560 --> 0:01:46.440 three billion dollars worth of electric vehicles this year and 0:01:46.480 --> 0:01:49.720 they're slated to lose about three billion dollars on their sales. 0:01:49.800 --> 0:01:53.000 So currently their margin is like negative one hundred percent, 0:01:53.360 --> 0:01:55.040 but they say they are going to be able to 0:01:55.040 --> 0:01:57.840 boost it to eight percent on EV's by twenty twenty six, 0:01:57.920 --> 0:01:59.480 and that's what they want to convince analysts. 0:02:00.000 --> 0:02:01.680 I think I was curious about matt Is. I mean, 0:02:01.720 --> 0:02:04.200 we didn't get forwards earnings earlier this month, and they 0:02:04.240 --> 0:02:06.680 beat on first quarter profit, but they obviously warned on 0:02:06.720 --> 0:02:08.600 their outlook for this year. I'm kind of wondering how 0:02:08.600 --> 0:02:11.160 does the EV sort of fit into that dynamic and 0:02:11.200 --> 0:02:13.400 how much growth could that potentially When you're hearing and 0:02:13.440 --> 0:02:15.760 talking to the CEO for does he think that that 0:02:15.800 --> 0:02:18.840 could potentially help things moving forward? 0:02:19.440 --> 0:02:22.959 So the EV, you know, last year they only sold 0:02:23.280 --> 0:02:26.720 sixty one thousand evs in the US, and of course 0:02:26.880 --> 0:02:31.480 they sell millions of cars, so it's hardly anything, but 0:02:31.560 --> 0:02:35.440 hopefully that share is going to increase. Still, it's not 0:02:35.680 --> 0:02:38.480 the you know, the cold steel that they sell off 0:02:38.520 --> 0:02:41.840 dealership lots that makes them money. You know, they're hoping 0:02:41.880 --> 0:02:44.840 to get, like I said, margins back to eight percent 0:02:44.880 --> 0:02:48.239 and their traditional ic business they're hoping to be around 0:02:48.280 --> 0:02:49.840 ten percent, which is where they are right now. They 0:02:49.840 --> 0:02:51.360 make a ton of money on the f one fifty 0:02:51.360 --> 0:02:54.480 trucks that they sell with gas engines, but the real growth, 0:02:54.520 --> 0:02:58.120 according to Farley, is going to come from software and services. 0:02:58.160 --> 0:03:00.920 They have, for example, a business unit for pro that 0:03:01.040 --> 0:03:05.400 works with you know, contractors, plumbers, electricians, et cetera, and 0:03:05.480 --> 0:03:08.840 they make a ton of money, like big Fat Margins, 0:03:09.120 --> 0:03:12.120 selling software that can tell you, you know, if your 0:03:12.160 --> 0:03:15.440 engine has got a problem. If your door needs fixed. 0:03:15.440 --> 0:03:18.200 They even can tell that your windshield wiper is moving 0:03:18.280 --> 0:03:21.519 in a way that that means it's about to break. 0:03:21.600 --> 0:03:24.880 So that's where they see the growth coming and that's 0:03:24.880 --> 0:03:27.480 what they're hoping to see in the future. 0:03:27.600 --> 0:03:30.560 So Zach, it's not only the year of efficiencies at Meta, 0:03:30.639 --> 0:03:33.160 it's also at Ford Motor Company, and Matt did catch 0:03:33.240 --> 0:03:36.200 up with Ford CEO Jim Farley to talk about the 0:03:36.280 --> 0:03:39.280 efficiencies that it could put together, all of them in 0:03:39.440 --> 0:03:43.240 many different forms. Listen up, everybody, We're making progress. 0:03:43.480 --> 0:03:47.120 It needs to go faster. But a new culture setting 0:03:47.160 --> 0:03:51.000 in in the company. We have, you know a lot 0:03:51.040 --> 0:03:54.040 of other competitors that made a lot of personnel reductions. 0:03:54.400 --> 0:03:56.720 We see that as kind of more of an in 0:03:56.760 --> 0:03:59.680 our journey on cost and quality, more of an output metric. 0:03:59.760 --> 0:04:02.360 So we want to reduce is more like the bill 0:04:02.480 --> 0:04:06.120 material cost, the industrial cost, and the plants a lot 0:04:06.120 --> 0:04:08.680 of extra inventory we want to get out as well 0:04:08.720 --> 0:04:12.680 as our negotiated cost with the supplier. So our cost 0:04:12.720 --> 0:04:14.600 we want to get out is actually in the heart 0:04:14.640 --> 0:04:16.080 of our industrial system. 0:04:16.200 --> 0:04:17.520 It's not like just people. 0:04:18.120 --> 0:04:20.719 You have said in the past, you have twenty five 0:04:20.760 --> 0:04:24.560 percent more engineers working on the same output as your competitors. 0:04:24.920 --> 0:04:28.200 Does that mean you're going to reduce that twenty five percent? 0:04:28.279 --> 0:04:30.599 Are you letting it happen through attrition? How's it working? 0:04:32.040 --> 0:04:35.280 You know, we're very intentional about this, Matt. I think 0:04:35.600 --> 0:04:40.200 you're going to see from Ford over many years, a 0:04:40.320 --> 0:04:46.200 natural reduction, not through attrition, but skill mismatch, intentional transition 0:04:46.360 --> 0:04:49.880 of our teams, moving some of the engineering to lower 0:04:49.920 --> 0:04:54.040 cost labor sources. So it'll be a combination of things. 0:04:55.000 --> 0:04:58.880 But you know, it's obvious that we have we have 0:04:58.960 --> 0:05:02.760 to be more efficient uncompetitive advertising and marketing spend is 0:05:02.760 --> 0:05:05.800 also something that you've called out. Actually, I would say 0:05:06.680 --> 0:05:10.840 on our blue business we've underinvested in advertising. We want 0:05:10.960 --> 0:05:13.120 on our E business really not to do a lot 0:05:13.120 --> 0:05:14.360 of broadcast advertising. 0:05:14.360 --> 0:05:16.280 We want to practice speak for itself. 0:05:16.320 --> 0:05:18.920 And really the investment in the marketing there is really 0:05:19.000 --> 0:05:21.760 the ownership model, so people kind of come back and 0:05:21.920 --> 0:05:22.520 high loyalty. 0:05:22.560 --> 0:05:24.520 Same with pro on the blue business. 0:05:25.040 --> 0:05:26.919 You know, we are starting to see inventories grow for 0:05:26.960 --> 0:05:28.880 the whole industry. We're in a great space. We have 0:05:28.920 --> 0:05:33.440 a really fresh lineup of vehicles, but that merchandising capability, 0:05:33.480 --> 0:05:35.080 I would assume We're going to have to spend more 0:05:35.120 --> 0:05:38.600 this year and prices will come down, thankfully for the 0:05:38.640 --> 0:05:41.560 customer after all these years of tight supply. 0:05:42.320 --> 0:05:44.080 How much do you think prices are going to come 0:05:44.120 --> 0:05:45.560 down and what's going to drive. 0:05:45.360 --> 0:05:48.559 That we're assuming in our plan this year and next year, 0:05:48.960 --> 0:05:52.640 you know, five plus percent reduction. It's kind of in 0:05:52.720 --> 0:05:55.760 between where we were maybe in nineteen and where we've been. 0:05:56.720 --> 0:05:58.760 I don't think we see what we'ren't going to go 0:05:58.800 --> 0:06:00.359 back to the days a couple of years of one 0:06:00.400 --> 0:06:02.839 hundred day supply, so most people are in the fifty 0:06:02.880 --> 0:06:07.160 day supply range. You know, I think the natural discounting 0:06:07.240 --> 0:06:10.200 for someone who has an older product is going to 0:06:10.240 --> 0:06:12.640 be in the thousands. You're starting to see now low 0:06:12.680 --> 0:06:16.360 aprs from a lot of brands who have older product. 0:06:16.640 --> 0:06:18.120 What's unique of before. 0:06:17.760 --> 0:06:20.080 It is we're basically we have an all new lineup, 0:06:20.200 --> 0:06:22.960 soh you know, we're a bit of a unicorn. But 0:06:23.040 --> 0:06:26.000 I think the background pricing will be more difficult. 0:06:26.160 --> 0:06:29.080 You said in the past, or people have asked, you know, 0:06:29.120 --> 0:06:31.840 how do you get from eight percent on your ev 0:06:32.000 --> 0:06:34.479 business you want to do ten percent overall to like 0:06:34.520 --> 0:06:39.360 the seventeen percent that Tesla has Do you get up 0:06:39.360 --> 0:06:42.440 there or do they you think eventually see margin pressure. 0:06:42.560 --> 0:06:44.880 It's a good question. Both both are going to happen. 0:06:45.160 --> 0:06:47.560 We're seeing you know, look at what's happening in China 0:06:47.920 --> 0:06:48.560 with BYD. 0:06:48.960 --> 0:06:50.560 It looks what's happening with Tesla. 0:06:50.600 --> 0:06:53.719 They reduce their prices on model why their main product, 0:06:53.760 --> 0:06:56.240 you know, five seven thousand dollars. It goes up, it 0:06:56.279 --> 0:06:59.360 goes down, but it's it's pretty far down. I think, 0:06:59.480 --> 0:07:01.720 you know that they've had the market to themselves at 0:07:01.640 --> 0:07:03.360 a big head star kind of like what we do 0:07:03.440 --> 0:07:08.479 on pro and now they're seeing a lot more pressure. Obviously, 0:07:09.000 --> 0:07:11.040 I think we're going to definitely see that, especially in 0:07:11.120 --> 0:07:12.120 the two row crossover. 0:07:12.440 --> 0:07:13.960 We think there'll be like fifty to one. 0:07:13.960 --> 0:07:16.680 Hundred new models, so you know, and a lot of 0:07:16.720 --> 0:07:18.720 people want to grow, so there's going to be it's 0:07:18.760 --> 0:07:20.280 gonna be a great time to buy a two row 0:07:20.320 --> 0:07:24.720 electric EV for customers like Makey where we compete really 0:07:25.520 --> 0:07:30.160 in EV you know, pickup trucks, three row crossovers that 0:07:30.160 --> 0:07:34.200 we're going to show people today and the commercial vehicle 0:07:34.280 --> 0:07:38.160 EV commercial vehicles, we don't see as much price you know, 0:07:38.240 --> 0:07:42.200 competition because there's not as many vehicles choices there all. 0:07:42.160 --> 0:07:43.560 Right, That, of course is the Ford CEO Ji of 0:07:43.600 --> 0:07:45.520 Farley talking there with Matt. Matt, you know, I'm trying 0:07:45.520 --> 0:07:47.880 to understand if they're going to be cutting prices, they're 0:07:47.880 --> 0:07:50.520 projecting what billions of dollars of losses for their EV 0:07:50.680 --> 0:07:52.240 unit this year. I mean, how is it that they 0:07:52.320 --> 0:07:56.160 ultimately get to that eight percent return on EV's It's 0:07:56.160 --> 0:07:58.080 not going to be easy. I get the efficiencies, but 0:07:58.120 --> 0:07:58.800 it's gonna be tough. 0:07:59.680 --> 0:08:01.320 No, it's not going to be easy. But they're taking 0:08:01.320 --> 0:08:03.720 out two and a half billion dollars of costs this year, 0:08:04.040 --> 0:08:06.880 and they think that they have six to seven billion 0:08:06.960 --> 0:08:11.240 dollars of structural cost disadvantages compared to competitors that they 0:08:11.280 --> 0:08:13.600 want to take out by the middle of the decade. 0:08:13.680 --> 0:08:16.480 So you add that to the software and services revenue 0:08:16.520 --> 0:08:19.080 that they hope to really start generating, especially from the 0:08:19.280 --> 0:08:22.200 ED cars. And remember they're cutting prices on just like 0:08:22.280 --> 0:08:26.760 Tesla right on the cheaper vehicles. The more expensive vehicles 0:08:26.800 --> 0:08:29.320 are not getting cut. In fact, those prices are rising. 0:08:29.440 --> 0:08:31.120 So if you want you know, an F one to 0:08:31.160 --> 0:08:33.559 fifty lightning Er, if you want a Raptor R, or 0:08:33.600 --> 0:08:36.080 if you want a Bronco Wild Track. You're not getting 0:08:36.160 --> 0:08:38.320 a price cut on those. You're not getting a price 0:08:38.360 --> 0:08:40.600 cut on any of the Halo cars, just the cheaper stuff. 0:08:40.679 --> 0:08:42.360 You know what I really want? I want a Cony dog. 0:08:42.440 --> 0:08:43.280 Can you bring one back? 0:08:44.360 --> 0:08:44.480 Uh? 0:08:44.559 --> 0:08:46.040 Yeah, I'll get you a Coney to go. 0:08:46.760 --> 0:08:48.839 That'll be pretty ugly by the time it gets here. 0:08:49.000 --> 0:08:50.280 I'm loving that leather jacket. 0:08:50.280 --> 0:08:50.480 Math. 0:08:50.760 --> 0:08:52.680 He wears it, well, he wears it with you. 0:08:52.679 --> 0:08:52.880 You know. 0:08:53.360 --> 0:08:56.120 Mike McKee didn't like this. Apparently he doesn't like the look. 0:08:56.360 --> 0:09:00.760 It is an authentic nineteen forty three pilot's check. 0:09:02.440 --> 0:09:04.319 All right, we'll get Mike in and you the two 0:09:04.280 --> 0:09:06.439 if you can kind of debate it out, all right, 0:09:06.440 --> 0:09:09.440 My Matt safe travels back home, of course, our Matt 0:09:09.440 --> 0:09:11.040 Miller there in Detroit. 0:09:12.200 --> 0:09:15.760 You're listening to the Bloomberg Business Week podcast. Catch us 0:09:15.800 --> 0:09:19.160 live weekday afternoons from three to six Eastern Listen on 0:09:19.200 --> 0:09:23.240 Bloomberg dot com, the iHeartRadio app and the Bloomberg Business App, 0:09:23.520 --> 0:09:31.400 or watch us live on YouTube. 0:09:28.760 --> 0:09:45.679 No business theres on our radar today. Nowhere to hide, 0:09:45.679 --> 0:09:47.960 because folks, we are tracking it. Because it does feel 0:09:47.960 --> 0:09:50.560 like from day to day there is news on the 0:09:50.600 --> 0:09:53.840 semi space, mostly because of Micron technology, certainly in today's 0:09:53.880 --> 0:09:57.160 trade stock under pressure after China cyberspace regulator said that 0:09:57.200 --> 0:10:01.000 its products failed to pass a cybersecurity review in the country. 0:10:01.040 --> 0:10:03.120 And this comes on the heels of a Bloomberg exclusive 0:10:03.200 --> 0:10:05.600 last week of Micron said to be getting one and 0:10:05.640 --> 0:10:08.240 a half billion from the Japanese government to make next 0:10:08.280 --> 0:10:11.640 gen memory chips in Japan. So let's get to what 0:10:11.720 --> 0:10:13.840 it all means, because it's certainly an important sector. I mean, 0:10:13.880 --> 0:10:16.840 we all know chips go into so much and how 0:10:16.880 --> 0:10:20.240 it really fits in, especially the Micron news into the 0:10:20.280 --> 0:10:23.160 overall semi space. So let's get to it. Paula pencal 0:10:23.240 --> 0:10:26.200 Is with US Bloomberg Intelligence Semiconductor's analyst in our Bloomberg 0:10:26.240 --> 0:10:28.720 Interactive Brokers studio. Also with us is I and King 0:10:28.960 --> 0:10:31.839 Bloomberg News, US semiconductor networking reporter on the phone in 0:10:31.880 --> 0:10:35.839 San Francisco and Ian. You were part of the team 0:10:35.880 --> 0:10:38.640 that put together that exclusive last week about the investment 0:10:38.679 --> 0:10:41.480 in Micron. Let's start with you. A lot of news, 0:10:41.559 --> 0:10:44.160 a lot going on with Micron. You always remind me 0:10:44.240 --> 0:10:48.000 not every semiconductor is the same. Tell us about the 0:10:48.000 --> 0:10:50.480 news around Micron and why it's important to follow what's 0:10:50.520 --> 0:10:50.880 going on. 0:10:51.640 --> 0:10:54.000 Yeah, I mean this is being seen as an escalation 0:10:54.240 --> 0:10:57.840 of the ongoing trade dispute, trade war, call it what 0:10:57.880 --> 0:11:02.160 you want, between the US, which is theest creator of semiconductors, 0:11:02.200 --> 0:11:06.160 and China, which is the largest market for semiconductors. And 0:11:06.200 --> 0:11:08.719 what's going on here really is that Micron is being 0:11:08.720 --> 0:11:11.440 told by the Chinese government we don't like your products, 0:11:11.480 --> 0:11:13.679 we don't think they're safe, and we're going to ban 0:11:13.800 --> 0:11:18.320 them from critical infrastructure. A lot of lack of clarity 0:11:18.360 --> 0:11:20.600 around what that actually means and what that impact is 0:11:20.600 --> 0:11:23.160 going to have, but obviously as a headline, it's not 0:11:23.200 --> 0:11:24.040 a pretty one. 0:11:24.559 --> 0:11:26.880 And Paul I want to bring you into this conversation. 0:11:26.960 --> 0:11:29.640 So as an analyst at Bloomberg Intelligence, what's your sort 0:11:29.679 --> 0:11:31.920 of big takeaway in the development and all this. 0:11:33.040 --> 0:11:35.040 Well, first of all, we don't really know what the 0:11:35.080 --> 0:11:40.239 impact is, as Ian had pointed out. Mark Murphy, the CFO, 0:11:40.480 --> 0:11:44.720 commented today at JP Morgan's conference, that the impact could 0:11:44.760 --> 0:11:49.680 be anywhere from single digit percent impact to top line revenue, 0:11:49.880 --> 0:11:52.920 or it could be low single digit up to high 0:11:52.960 --> 0:11:55.920 single digit. But then he went on to say, we 0:11:56.160 --> 0:11:59.680 really don't have a lot of clarity, China was light 0:11:59.760 --> 0:12:05.760 on what exactly it meant by this security risk. The 0:12:05.760 --> 0:12:08.920 one thing I would point out is it's clearly it 0:12:09.280 --> 0:12:15.199 does appear to be a political posturing because typically memory 0:12:15.280 --> 0:12:20.720 chips are not targeted by hackers just because they tend 0:12:20.720 --> 0:12:22.319 to have storage. They don't have a lot of like 0:12:23.640 --> 0:12:28.400 specific software that runs on it or code. So that 0:12:28.520 --> 0:12:31.880 sort of supports the fact that this is definitely likely 0:12:32.160 --> 0:12:33.280 a political move. 0:12:33.400 --> 0:12:34.880 I mean, yeah, right, you know, I mean it's a 0:12:34.920 --> 0:12:37.560 little wacky, right if you again you remind us that 0:12:37.600 --> 0:12:40.280 not all chips are the same Paul the same thing, 0:12:40.360 --> 0:12:43.559 But I mean it's a little weird. And I do 0:12:43.679 --> 0:12:47.920 wonder as you follow this space, is it just a 0:12:48.000 --> 0:12:51.560 case until this political football kind of calms down a 0:12:51.559 --> 0:12:53.520 little bit? I mean, is that the expectation? I mean, 0:12:53.559 --> 0:12:56.080 I feel like the rhetoric, especially when it comes to 0:12:56.200 --> 0:12:59.719 semis and high tech, just continues to get tougher and 0:12:59.760 --> 0:13:01.120 tough between the US and China. 0:13:01.880 --> 0:13:01.960 No. 0:13:02.080 --> 0:13:05.840 I think you're absolutely right. The general direction is towards escalation. 0:13:06.040 --> 0:13:10.000 And you know, the concern that overarching is of so 0:13:10.120 --> 0:13:13.080 called pea coupling, that these two markets will just learn 0:13:13.160 --> 0:13:15.520 to live without each other. But in the interim now 0:13:15.600 --> 0:13:18.720 cause an awful lot of pain. And the way to 0:13:18.720 --> 0:13:21.880 look at the Micron action, according to what some people think, 0:13:22.000 --> 0:13:24.880 is like China has not responded to a lot of 0:13:24.880 --> 0:13:27.319 what the US has done over the last couple of 0:13:27.440 --> 0:13:30.560 years because it couldn't because it didn't have anything to 0:13:30.600 --> 0:13:33.200 really fight back with. The Micron thing is the one 0:13:33.240 --> 0:13:37.080 thing that it could fight back with. They don't need Micron. 0:13:37.120 --> 0:13:40.480 They can get exactly the same chips from Samsung, exactly 0:13:40.520 --> 0:13:44.720 the same chips from Heinex, and therefore this isn't going 0:13:44.760 --> 0:13:47.120 to hurt them. They're not shooting themselves in the foot 0:13:47.440 --> 0:13:51.160 by taking action against Micron, and if perhaps for the 0:13:51.200 --> 0:13:54.000 political audience back in Beijing, this looks like they are 0:13:54.040 --> 0:13:55.720 doing something and it looks like they're being. 0:13:55.559 --> 0:13:58.280 Strong Paula, I'm curious as far as do we have 0:13:58.360 --> 0:14:00.680 any sort of scoop as far as how this could 0:14:00.720 --> 0:14:03.280 end up impacting Micron's financials. 0:14:04.240 --> 0:14:09.040 Well, again, they are unclear. The company has communicated to 0:14:09.280 --> 0:14:13.720 investors they are unclear as to the exact impact, but 0:14:14.040 --> 0:14:17.160 it could be anywhere from low single digits to high 0:14:17.160 --> 0:14:21.320 single digits, but they really don't know. I would say 0:14:21.360 --> 0:14:24.040 though that just to follow up on what you was saying. 0:14:24.200 --> 0:14:26.040 It is a little bit of a slippery slope for 0:14:26.160 --> 0:14:30.360 China though, because even though they don't need these memory 0:14:30.440 --> 0:14:34.920 chips because they can source them elsewhere, you know, there 0:14:34.920 --> 0:14:37.680 are other chips that they do need from the US. 0:14:37.720 --> 0:14:40.600 So it really is a battle between the two and 0:14:40.720 --> 0:14:42.640 Microns sort of stuck in the middle. 0:14:42.720 --> 0:14:44.320 Well, there was some great reporting. I think this might 0:14:44.360 --> 0:14:46.560 have been by Debi Wu, or maybe it was by 0:14:46.600 --> 0:14:49.960 you Ian. You know that Micron and I'm reading from 0:14:50.000 --> 0:14:52.080 the story Micron is still depend on the global electronic 0:14:52.120 --> 0:14:54.480 supply chains that often run through Chinese factories. I mean, 0:14:54.480 --> 0:14:57.640 this is the tricky stuff, right when we talk about globalization. 0:14:57.760 --> 0:14:59.680 That train has left the station, and when you look 0:14:59.720 --> 0:15:03.400 at some like semiconductors, right, it's a global supply chain. 0:15:03.600 --> 0:15:06.760 So how do we how do you look at something 0:15:06.840 --> 0:15:09.920 like that and ultimately where Micron lands, you know, with 0:15:10.080 --> 0:15:11.040 or without China. 0:15:11.760 --> 0:15:14.080 Yeah. No, to back up what Paula said and go 0:15:14.160 --> 0:15:16.920 back to what the CFO himself said, He's like, we 0:15:16.960 --> 0:15:19.440 don't know. First of all, yeah, we don't know, But 0:15:19.600 --> 0:15:23.920 guess what as much as a quarter of Micron sales 0:15:24.480 --> 0:15:28.360 somehow go through China, Whether it's Hong Kong headquartered companies. 0:15:28.400 --> 0:15:32.000 Whether it's through the distribution channel, we don't know, right, 0:15:32.000 --> 0:15:37.200 Because China the world is the world's device manufacturing center, 0:15:37.360 --> 0:15:39.400 so you really need to be there, you need to 0:15:39.400 --> 0:15:42.720 have those relationships. So anything that breaks up that chain 0:15:42.800 --> 0:15:45.680 that we've seen, you know, develop over the last thirty years, this, 0:15:46.000 --> 0:15:47.960 you know, interdependency is not good. 0:15:48.160 --> 0:15:51.480 So and go to the story that you and a 0:15:51.560 --> 0:15:54.960 colleague out of Asia broke last week about Micron getting 0:15:54.960 --> 0:15:57.000 one and a half billion from the Japanese government for 0:15:57.080 --> 0:16:00.040 next gen hip. So roll that into this story and 0:16:00.040 --> 0:16:00.640 in the reporting. 0:16:01.160 --> 0:16:03.400 Yeah, that's I think that's a that's a good way 0:16:03.440 --> 0:16:07.120 to perhaps segue into that because everybody in the world, 0:16:07.160 --> 0:16:09.560 you know, with the US, the Europeans, the Japanese, and 0:16:09.600 --> 0:16:13.240 the Koreans are like, look, we want chip independence too, right, 0:16:13.320 --> 0:16:16.080 we need to build our own factories. Japan's a little 0:16:16.080 --> 0:16:18.400 bit late to the game. But guess what, hey, Micron, 0:16:18.520 --> 0:16:21.560 come and build here. How does that look if you're China. 0:16:21.960 --> 0:16:25.560 Some song has a chip factory in China. Heinez has 0:16:25.560 --> 0:16:30.960 a chip factory in China. Micron doesn't, Right, How did 0:16:31.000 --> 0:16:32.080 I look? Yeah? 0:16:32.600 --> 0:16:35.840 Exactly? Paul come in on that Yeah, I would just say. 0:16:36.000 --> 0:16:39.560 I mean there's an element of Yeah, Micron's sort of 0:16:39.600 --> 0:16:43.400 like covering their bases just in case. And you know, 0:16:44.000 --> 0:16:46.440 I think like a couple of years ago they had 0:16:46.520 --> 0:16:50.960 planned to build in Japan and then you know, at 0:16:50.960 --> 0:16:55.720 their Hiroshima plan extend their capability there, but they backed out. 0:16:55.840 --> 0:16:58.480 I mean, the market went south and so on and 0:16:58.480 --> 0:17:00.360 so forth. But here they are back to the table. 0:17:00.400 --> 0:17:04.080 Everybody's sort of coming forth with their own equivalent to the. 0:17:04.119 --> 0:17:05.160 US Chips Act. 0:17:05.560 --> 0:17:10.120 Japan is you know, Singapore is even China is I'm 0:17:10.119 --> 0:17:12.520 hearing like one hundred and forty nine billion going to 0:17:12.600 --> 0:17:19.160 subsidize the sector. So Japan's taking advantage of this opportunity 0:17:19.200 --> 0:17:23.000 now to sort of establish itself and hopefully emerge as 0:17:23.080 --> 0:17:26.399 a new manufacturing hub within Asia. 0:17:26.480 --> 0:17:28.719 I do wonder too, though, Ian like, how ultimately does 0:17:28.760 --> 0:17:31.080 this work then if everybody's kind of developing their domestic 0:17:31.160 --> 0:17:34.840 JIP industry, yay, great, I guess right, it's in your backyard. 0:17:35.240 --> 0:17:37.080 But at some point, I mean, is it going to 0:17:37.080 --> 0:17:40.240 be problematic and require almost government support at some point 0:17:40.280 --> 0:17:43.000 because it's cyclical, right, I Mean, we always talk about this, 0:17:43.040 --> 0:17:45.439 and I do wonder is it going to ultimately end 0:17:45.520 --> 0:17:48.840 up in a glut of chips in a lot of markets. 0:17:49.440 --> 0:17:53.120 Well, Sanda Jah, the CEO of Micron, told me off 0:17:53.200 --> 0:17:55.520 saying that my thinking was too mid in the past, 0:17:55.560 --> 0:17:58.399 but that thinking is very much that this is a 0:17:58.560 --> 0:18:03.560 viciously cyclic industry. We've seen loads and loads of plans 0:18:03.600 --> 0:18:06.200 in the past about building factories here, there and everywhere. 0:18:06.280 --> 0:18:09.200 And guess what, when things get tight, those factories get 0:18:09.200 --> 0:18:11.440 built and they never get equipment put in them. Those 0:18:11.440 --> 0:18:14.560 factories get built and they end up doing something else. 0:18:14.600 --> 0:18:17.400 So believe that when you see the chips rolling off 0:18:17.440 --> 0:18:21.399 these lines would be my caution. But also, you know, 0:18:21.520 --> 0:18:24.440 take Sanjay Jar's word for it. Apparently my thinking is 0:18:24.520 --> 0:18:25.280 mired in the past. 0:18:25.960 --> 0:18:27.919 Well mine's apparently mired in the past too, because it 0:18:28.000 --> 0:18:31.040 just kind of makes sense to me. Any last final thoughts, 0:18:31.320 --> 0:18:33.320 Paula just got about twenty thirty seconds here. 0:18:33.600 --> 0:18:37.800 Now, I would just say that it's an ongoing process 0:18:37.840 --> 0:18:40.960 that we have to keep close eye on, and no 0:18:41.000 --> 0:18:44.439 one really knows what the final outcome is going to 0:18:44.480 --> 0:18:47.080 be on this front. And in terms of the impact, we. 0:18:47.040 --> 0:18:49.280 Can just hope that there's like the metaverse and AI 0:18:49.400 --> 0:18:52.200 everywhere and like we just need a million chips everywhere. 0:18:52.280 --> 0:18:54.760 I don't know, it's it's a very interesting time that 0:18:54.760 --> 0:18:57.840 we're living in. Paula, thank you so much. Paula Pancal. 0:18:58.000 --> 0:19:01.760 She's Semiconductor's analyst at Bloomberg Intelligence. Here in Studio Interactive 0:19:01.760 --> 0:19:04.960 Brokers Studio. I king our thanks oas our go to 0:19:05.480 --> 0:19:08.920 when it comes to all things global techs chips, usmconductor 0:19:08.920 --> 0:19:10.760 and networking reporter at Bloomberg News. 0:19:12.880 --> 0:19:16.439 You're listening to the Bloomberg Business Week podcast. Catch us 0:19:16.480 --> 0:19:20.600 live weekday afternoons from three to six Easter on Bloomberg Radio, 0:19:20.680 --> 0:19:24.000 the Bloomberg Business App and YouTube. You can also listen 0:19:24.080 --> 0:19:27.200 live on Amazon Alexa from our flagship New York station 0:19:27.640 --> 0:19:30.399 Just Say Alexa playing Bloomberg eleven thirty. 0:19:32.680 --> 0:19:35.120 So the aviation sector really set to thrive in twenty 0:19:35.160 --> 0:19:36.640 twenty three. You're just back from a trash. 0:19:36.520 --> 0:19:39.879 Just back from Maruba. Did not check bags because I'm 0:19:39.880 --> 0:19:42.160 always afraid I'm going to lose my. 0:19:42.160 --> 0:19:44.479 Bad You're helping setting a set up the next segment, 0:19:44.720 --> 0:19:47.000 so let's get to it with Sherry Stein. She's Chief 0:19:47.040 --> 0:19:50.679 Technology Officer of the America's at SITA. They are the 0:19:50.720 --> 0:19:53.919 IT provider for global aviation. They work at airports, on 0:19:54.000 --> 0:19:57.720 board planes at borders. They operate more than two hundred countries, 0:19:58.359 --> 0:20:00.960 which may explain why we find her on this Monday 0:20:01.080 --> 0:20:03.800 on zoom in Spain. Sherry, nice to have you here 0:20:03.880 --> 0:20:06.720 on Bloomberg. Talk to us a little bit about this organization, 0:20:06.840 --> 0:20:09.480 the history. It's been around for a long time, so 0:20:09.800 --> 0:20:11.480 just talk a little bit about the mission if you will. 0:20:12.560 --> 0:20:15.919 Sure, that's right, hey, Carole, just too nice to be 0:20:16.000 --> 0:20:19.240 here with you. Yeah. So CITA was formed in nineteen 0:20:19.359 --> 0:20:25.320