Speaker 1: From the heart of where innovation, money and power Collie
Speaker 1: in Silicon Valley, NB. This is Bloomberg Technology with Caroline
Speaker 1: Hide and Ed Ludlow. I'm Caroline Hide and Bloomberg's World
Speaker 1: headquarters in New York, and I'm Ludlow in San Francisco.
Speaker 1: This is Bloomberg Technology coming up. Tech stocks facing headwinds
Speaker 1: as we head into earning season. We'll discuss why the
Speaker 1: sector is twenty percent rally may be disconnected from reality.
Speaker 1: Plus a plunge in PC shipment's Apple seeing a forty
Speaker 1: percent drop in shipments. Is the industry grapples with unsold inventory.
Speaker 1: We'll bring you the details next, and mention capital firm
Speaker 1: Eclipse raises one point you billion for two new funds,
Speaker 1: both dedicated to backing startups trying to modernize physical industries.
Speaker 1: Will have an exclusive conversation with Fanning Partner or Susan.
Speaker 1: But first, let's check in on these publicly traded markets
Speaker 1: at the moment, and interesting that we've had a little
Speaker 1: bit of a flip reverse. I think we just want
Speaker 1: to go back to the broader markets. Head I seem
Speaker 1: to be jumping the gun and being trying to tell
Speaker 1: everyone your micro moves. It is a lot about chips.
Speaker 1: We are seeing a focus on the sales that are
Speaker 1: happening at the moment in terms of PCs. What that
Speaker 1: means also for the flood of infantry and chips. But
Speaker 1: let's just move it on to what's happening in terms
Speaker 1: of the broader markets. If we can the nastac off
Speaker 1: by nine tenths of a percent, This is more about
Speaker 1: the jobs print on Friday, more about the economic fundamentals,
Speaker 1: more about the Federal Reserve maybe giving us another twenty
Speaker 1: five basis points hike in May. Two year yield up
Speaker 1: two basis points, so boring cost, justus rising to that
Speaker 1: for all important four percent level. Bloomberg dollar indexts on
Speaker 1: the higher side as we start to price in a
Speaker 1: more hawkish fed. Moving on, because what does it mean
Speaker 1: for the world of crypto? While Bitcoin, even amid this
Speaker 1: dollar strength ed, we're still seeing Bitcoin managing to pull
Speaker 1: up actually more than a percentage point. We're above that
Speaker 1: twenty eight thousand level. We all I, of course, what's
Speaker 1: happening in the world of eth ethereum. We're expecting that
Speaker 1: upgrade come Wednesday. A lot of volatility likely to come.
Speaker 1: What about the micro though. Yeah, when it comes to
Speaker 1: single movers, the markets in the tech sector are trading
Speaker 1: what happened Friday because it was a holiday here in
Speaker 1: the US. Also, you know kind of thin volumes. Samsung,
Speaker 1: the world's biggest maker of memory chips, basically said they're
Speaker 1: going to cut production to meaningful levels get rid of
Speaker 1: the supply glut. You see names like Micron and Western
Speaker 1: Digital trading markedly higher, even though broadly tech is down.
Speaker 1: TSMC also posting numbers second consecutive quarterly sales miss, and
Speaker 1: that is weighing on the US ADRs of TSMC down
Speaker 1: three percent. The other data point we've woken up to
Speaker 1: this Monday morning is the IDC PC tracking data. A
Speaker 1: long story, shortcarrow. We will get into it later in
Speaker 1: the show. With IDC a big drop year on year
Speaker 1: in PC shipment's Apple certainly the worst, more than forty
Speaker 1: percent drop in its shipments. The stop reacting two percent.
Speaker 1: Dell also sort of drop, but it's a little bit higher,
Speaker 1: a little more sangwim when it comes to that name.
Speaker 1: The reason we care is that is not a good
Speaker 1: leading indicator or four bow for what's to come in
Speaker 1: this earning season. Around the quarter for those hardware makers
Speaker 1: carry Yeah, and it is all about now bracing ourselves
Speaker 1: for the earning season. What we anticipate, whether or not
Speaker 1: we can see any real fundamental reason for it, is
Speaker 1: basically a ball market that we've gone back into in
Speaker 1: the NASDAC and it seems as though when you go
Speaker 1: to the m Live pulse, this is a great way
Speaker 1: of getting the Bloomberg user that people who are managing
Speaker 1: money trading these stocks deciding really whether they're optimistic or not,
Speaker 1: and ultimately it feels like they're not particularly they think
Speaker 1: only fourteen percent in fact, think that the earnings are
Speaker 1: going to be strong enough to really vindicate some of
Speaker 1: the rally we've seen it. The other part that we're
Speaker 1: looking at with this is the rotation into tech came
Speaker 1: at the expense of the banks. Right, you think about
Speaker 1: what happened with SVB, So the question we ask ourselves
Speaker 1: going forward is, well, that's a little bit artificial because
Speaker 1: what hurt the banks is also worrying for the tech sector.
Speaker 1: Forty one percent of respondents saying what we saw with
Speaker 1: SVB could spill over in some of the bigger names.
Speaker 1: What does that mean going into earnings? What does that
Speaker 1: mean for the tech sector, Well, we are s our audience.
Speaker 1: And this is what they've had to say in recent weeks.
Speaker 1: Carry the decline in the yields is actually driving tech stocks.
Speaker 1: And if you take a look at the Quintessential Central Fangman,
Speaker 1: they peaked at twenty eight percent of the SMP. They
Speaker 1: trotted around eighteen and they've really inched up recently. And
Speaker 1: that's being because you know that discounting mechanism, which is
Speaker 1: represented by the yield, has resulted in those long tail
Speaker 1: cash flows being worth more. These tech companies, if we're
Speaker 1: talking to some of the bigger ones, I think they're
Speaker 1: defensive and the standpoint of the health of their balance sheets.
Speaker 1: You can see that when the banking crisis erupted that
Speaker 1: even some of the bigger fan companies actually outperformed in
Speaker 1: a relative basis because essentially their balance sheets are stellar.
Speaker 1: The cost cutting once that started happen, the bottom and tech,
Speaker 1: in my opinion, was done, and that's why I believe
Speaker 1: there is still another ten to fifteen prison upside tech.
Speaker 1: If you look at the seven biggest tech stocks in
Speaker 1: the US, I think they make up almost more than
Speaker 1: ten percent of the SMP. Five hundred in terms of
Speaker 1: market cap, and that's only going to grow as people
Speaker 1: find that that's the only place to hide. But once
Speaker 1: earnings start to slow down, you should see that. You
Speaker 1: should see this segment start to start there. You should
Speaker 1: see their share prices start to fall a breadth of
Speaker 1: viewpoints their head. But actually, what hasn't there been in
Speaker 1: breadthin is the market rally in the first quarter. It
Speaker 1: was all down to some of these big tech names.
Speaker 1: That's why it's important for the broader market, right, And
Speaker 1: you look at the run up and then as that
Speaker 1: one hundred the first three months of this year, the
Speaker 1: rotation into tech, it's completely odds with earnings expectations. The
Speaker 1: data shows that we think it's going to be a
Speaker 1: pretty rubbish season, particularly for megacap tech. So how do
Speaker 1: you tally those two things? And also how expensive? Therefore
Speaker 1: tech has become twenty four times on the NASA one
Speaker 1: hundred in terms of forward earnings. That's more than we've
Speaker 1: seen over the last Hey, let's get straight to it
Speaker 1: with all. The woman has a few ancess for us,
Speaker 1: Gina Mouston Adams. We're so prettied to say she's coming
Speaker 1: to us. Of course, you know, our Broombag intelligence Gina,
Speaker 1: we are seeing a lot of adam more basically, how
Speaker 1: we've set ourselves up for the earning season. People bracing
Speaker 1: for the numbers to come down and actually what there
Speaker 1: since two thousand and six. Yeah, it should be a
Speaker 1: pretty rough earning season, not just for tech but really
Speaker 1: for the SMP five hundred at large. And indeed it's
Speaker 1: expected to be a pretty rough first half altogether. Analysts
Speaker 1: are now forecasting greater than seven percent decline in the
Speaker 1: first half. Remember at the beginning of the year, they
Speaker 1: were expecting only a two percent decline, So in the
Speaker 1: matter of just a few weeks, analyst expectations have been
Speaker 1: plumbing techs a big part of that. Both the tech
Speaker 1: and communication sector, which of course houses stuck like Alphabet
Speaker 1: and meta stocks that we generally think of as tech.
Speaker 1: Both of those segments of the SMP five hundred are
Speaker 1: anticipated to produce double digit declines and earnings for the
Speaker 1: first quarter on the heels of a really rough fourth quarter.
Speaker 1: So not much good news anticipated to come with the
Speaker 1: first quarter earning season. It's the only thing that from
Speaker 1: a fundamental perspective, may be enabling some better performance from
Speaker 1: these stocks on the communication side is the valuations are
Speaker 1: very very low. This is a group that has been
Speaker 1: trading off for the better part of a year and
Speaker 1: a half, so at least on that side of the
Speaker 1: space where the Googles and that rather alphabet and Meta
Speaker 1: Netflix disneys of the world are trading at relative discounts.
Speaker 1: So that has emerged. And then also we have seen
Speaker 1: a tremendous amount of cost cutting. So the consensus is
Speaker 1: anticipating that within the first half of this year these
Speaker 1: companies will prove enough cost cutting, rationalization of expenses and
Speaker 1: the like that they can produce a margin turnaround by
Speaker 1: the end of twenty twenty three. Gina, we talked about
Speaker 1: the rotation into tech they kind of gained and then
Speaker 1: as that one hundred, this sort of starkist example of
Speaker 1: that you have megacat tech in that indatex. You also
Speaker 1: have very high multiple software names, some of them preprofit
Speaker 1: as well. Why is there such a why are they
Speaker 1: so odd? The sort of outlook for a poor earning
Speaker 1: season and the performance of that index, Well, I think
Speaker 1: there's a combination of things going on. The first is,
Speaker 1: even though outlook the alok for earnings is relatively negative,
Speaker 1: we did price in a very negative outlook for earnings
Speaker 1: by the end of twenty twenty two. Really, as of
Speaker 1: the early part of October twenty twenty two, the market
Speaker 1: was pricing for a significant decline in earnings to come.
Speaker 1: We did see the relative momentum and analyst revisions reach
Speaker 1: a low at the point as well, So even though
Speaker 1: revisions are still going lower, they're not going lower as
Speaker 1: fast as they were in the fall of last year,
Speaker 1: so that has created some degree of stability. I think
Speaker 1: another thing to consider is at the start of this year,
Speaker 1: some of these stocks were incredibly discounted. Again, these are
Speaker 1: the communications segments of tech, not the traditional tech, but
Speaker 1: the communication stucks were trading at very extreme discounts relative
Speaker 1: to their long term history, which would imply they were
Speaker 1: relatively prepared for very negative earnings news. And then many
Speaker 1: of these companies came out and announced cost cutting measures
Speaker 1: that allowed for the consensus to start to think about
Speaker 1: a potential margin finally forming for this segment of the index.
Speaker 1: And then the whilest I would say really did support
Speaker 1: the rotation was about interest rates. We've seen a pretty
Speaker 1: big rally and interest rates, which naturally results in improvement
Speaker 1: in some of the longer duration, higher growth segments of
Speaker 1: the index in terms of valuation expansion. So it's not
Speaker 1: been about earnings really, it's more about a lot of
Speaker 1: other factors that have helped some near term recovery in
Speaker 1: this group. Caroline, you mentioned earlier the valuation question. You
Speaker 1: know later in the show we're going to pass over
Speaker 1: the IDC data with IDC. I'm looking forward to that.
Speaker 1: How much is that a crystal ball for the trouble
Speaker 1: macro environment we're in right now for technology? Yeah, Gina,
Speaker 1: to that point, you used to always come on around
Speaker 1: earnings in the clothes when I was lucky enough to
Speaker 1: be in those hours as well, and thinking about when
Speaker 1: you get about earnings from For me, the canary in
Speaker 1: the coal mine was nearly always snap and it was
Speaker 1: about advertising. But now all were starting to think more
Speaker 1: about well, inventory, about consumer, about demand, about the chip sector. Yep.
Speaker 1: And I think this is a really important distinction between
Speaker 1: This is why I keep talking about the communication stocks
Speaker 1: versus the tech stocks. Communication stocks are a different group
Speaker 1: intentionally because fundamentally they trade on a slightly different cycle.
Speaker 1: Communication stocks led this down draft. Remember that's where you
Speaker 1: saw a tremendous amount of margin weakness. That's where Snap
Speaker 1: was absolutely a good leading indicator. Now we're moving into
Speaker 1: a slightly different portion of the cycle, which you would
Speaker 1: expect would probably hammer away at some of the tech
Speaker 1: strengths and tech specific strengths, which is really more about
Speaker 1: not only software and services, but those hardware names, the
Speaker 1: communications equipment names, the semiconductor's names. The areas of the
Speaker 1: index that are really traditional tech they're subject to an
Speaker 1: inventory cycle, are the areas where, unfortunately valuations are still
Speaker 1: a little bit overpriced. Earning's weakness is emerging, has emerged
Speaker 1: over the last year, certainly with an inventory crisis that
Speaker 1: has emerged but is likely reaching more critical levels. And frankly,
Speaker 1: I think the investor base is really captivated by the
Speaker 1: idea of a cycle, and in particular with Apple and
Speaker 1: Microsoft really being able to shrug off risks fast quickly
Speaker 1: and recover quickly. Yeah, and that's a notion that we're
Speaker 1: going to really question over the course of the next
Speaker 1: earning season is how much of this is a short
Speaker 1: term weakness versus a long term weakness. How rapidly can
Speaker 1: these companies to recover strength into twenty twenty four that
Speaker 1: is likely to frame. I think the outlook for these
Speaker 1: ducks and how many times can they mention artificial intelligence
Speaker 1: to get people on sited Gina Marston Adams, I mean,
Speaker 1: thank you so much opening meg Intelligence. IDC out with
Speaker 1: its latest report showing PC demand is plunging, with Apple,
Speaker 1: for example, seeing a more than forty percent decline in
Speaker 1: shipments year year in the first quarter, joining us an
Speaker 1: now I DC Group Vice President for Consumer Device Trackers
Speaker 1: Ryan Reith, and Ryan, you know, Apple is the kind
Speaker 1: of headline here that across the industry we're back below
Speaker 1: early twenty nineteen levels for shipments. What is the principal
Speaker 1: cause really demandsload? Good to talk to you guys, by
Speaker 1: the way, it's nice like going on again put on. Honestly,
Speaker 1: it's really a demand story at this point. You know,
Speaker 1: I think you know the way we're looking at the
Speaker 1: entire market is we're basically at a correctional standpoint, and
Speaker 1: the correction is not just going to be this Q
Speaker 1: one that we just put out a report this morning. Realistically,
Speaker 1: the correction is going to be probably most of this
Speaker 1: year or the industry sees some growth around PCs. But
Speaker 1: so yeah, that's kind of where we're at at this stage,
Speaker 1: it's not a supply issue. It's not anything there. It's
Speaker 1: really a demand issue. And Ryan, the reasoning behind the
Speaker 1: demand issue. Is it that well, some of these computers
Speaker 1: haven't been upgraded of late, with silantipitating Apple to do
Speaker 1: that in the second half of the year, everyone already
Speaker 1: over indexed on purchasing them. Or is it actually when
Speaker 1: I worried about our finances, we don't want to make
Speaker 1: big purchases. It's probably more of the ladder. I think
Speaker 1: it's uh, you know, you've got sorry about that. I
Speaker 1: just pumped the table here. Um, you've got the you know,
Speaker 1: you've got the ongoing you know, inflation concerns that are
Speaker 1: rising costs of goods already, you know, the global recession
Speaker 1: fear has not gone away. It's been tempered a little
Speaker 1: bit in some regions. So I think it's probably more
Speaker 1: of the ladder that both consumers, companies and education institutions
Speaker 1: are sort of holding onto their purse strings a little
Speaker 1: bit tighter than they would And it makes sense. And
Speaker 1: I think a lot of the industry, from supply chain
Speaker 1: all the way up to the OEMs, they foresaw this coming.
Speaker 1: I think the question was really what's the magnitude going
Speaker 1: to be, And nobody wanted to, you know, over sort
Speaker 1: of correct on the downside because they didn't want to
Speaker 1: miss an opportunity like many did throughout the pandemic. So
Speaker 1: I think we're at that point now where you're gonna
Speaker 1: you know, we already heard a little bit from Samsung
Speaker 1: around memory, but we've got some really important tech earnings
Speaker 1: coming up in the next couple of weeks. Would you
Speaker 1: guys know very well? I think we're going to start
Speaker 1: to hear a little bit more, probably hear a little
Speaker 1: bit more. You know, the storm's not over, more so
Speaker 1: than the positives. But you know, I just want to
Speaker 1: sort of just preface by sort of saying that we
Speaker 1: still believe that, you know, we get into next year,
Speaker 1: that we're going to be at at or a little
Speaker 1: above pre pandemic level. So there is some positive in
Speaker 1: all this, but we're going to hear some negativity not
Speaker 1: only from what we put out today but realistically probably
Speaker 1: through the next couple of course. And ed, I mean,
Speaker 1: we already heard the warnings. The CFO of Apple himself,
Speaker 1: Luca was saying we're going to see double digit declines
Speaker 1: in the map part of the business. But it's not
Speaker 1: just Apple being affected. Yeah, And we were saying earlier, Ryan,
Speaker 1: you know, how much is your data set a crystal
Speaker 1: ball ahead of earning season? But I wonder if we
Speaker 1: can actually get even more granularity. Right, it's not Apple.
Speaker 1: You look at Dell greater than thirty percent, decline HP
Speaker 1: greater than twenty four percent. Is there any geographic or
Speaker 1: demographical breakdown you can see real pullback from the consumer. Yeah, well,
Speaker 1: it's happening across the board. I would say the pullback
Speaker 1: that we're seeing now, the shift is probably more angled
Speaker 1: towards the developed markets in the last six months, and
Speaker 1: the reason for that is because more of the developing
Speaker 1: markets around the world had already sort of corrected for
Speaker 1: consumer pullback, you know, hit a little bit harder on
Speaker 1: the wallet and so forth, and businesses sort of followed
Speaker 1: in sort of in that same segue, meaning, you know,
Speaker 1: businesses in these emerging markets sort of said, hey, look,
Speaker 1: if we needed a PC, maybe we could do another
Speaker 1: six months without buying that PC. Or if people were
Speaker 1: going to refresh every five years, maybe we can get
Speaker 1: them to six years now. And that sort of prolongs
Speaker 1: the cost. So again, I know, developed market versus emerging
Speaker 1: market doesn't really sort of break down the geographies. But
Speaker 1: you know, I think when you look at things, you know,
Speaker 1: our expectation is that, you know, the the North American
Speaker 1: market has still been doing good in comparison to the
Speaker 1: global market. You know, we've seen pockets of again I
Speaker 1: use the word strength very lightly because it's really not
Speaker 1: strength but a little bit better sort of opportunity in
Speaker 1: some of the European markets. China seeing a little bit
Speaker 1: of recovery. Going to take a little bit more time there,
Speaker 1: especially on the consumer side. So it's really spread out,
Speaker 1: but it's probably hitting the pullbacks and the developing markets
Speaker 1: a little bit more just because of the cost. Ran
Speaker 1: reath great breakdown, thank you of IDC Group, and he
Speaker 1: led us there. He started talking about China and the
Speaker 1: demand from that country. Let's stick with Apple and in fact,
Speaker 1: it's relationships with China, and you know that it's one
Speaker 1: US business that's facing some of the steepest challenges. So
Speaker 1: we say to selective decoupling as it's been called from China.
Speaker 1: It's a key lawmaker has been saying after a series
Speaker 1: of meetings with executives and experts in Hollywood and Silicon
Speaker 1: Valley over the last week or so. Let's go for
Speaker 1: more on this from the most Economics Tom Orlick and Tom,
Speaker 1: we're talking about Mike mcgallagher in particular, discussing this selective decoupling.
Speaker 1: What does he mean exactly? So we've got Mike Gallagher,
Speaker 1: the chair of a new House committee on US China
Speaker 1: relations heading over to California, meeting with Tim Cook of Apple,
Speaker 1: meeting with Bob Iger of Disney, and talking about this
Speaker 1: concept of selective decoupling. Now, the idea here is that
Speaker 1: there are some aspects of the US China relationship which
Speaker 1: are strategically important. Most here in Washington, DC, for example,
Speaker 1: don't want China to get the edge in artificial intelligence,
Speaker 1: and that's why there's now a ban in selling China
Speaker 1: the leading edge semiconductors which are required to do leading
Speaker 1: edge AI work. Other parts of the relationship, though, snapping
Speaker 1: together iPhones, watching Disney movies, cooperating on climate change, there's
Speaker 1: a desire to keep those relationships on an even keel.
Speaker 1: The big question, of course, is well, in practical terms,
Speaker 1: for a company like Apple, for a company like Disney,
Speaker 1: what does that selective decoupling look like, and is it
Speaker 1: in fact possible to have intense colastetition, intense rivalry over here,
Speaker 1: but normal relationships over there. Tomorlick of Bloomberg Economics, who,
Speaker 1: of course, Caroline spent many years in China at the
Speaker 1: heart of that economy, so knows both sides. All right.
Speaker 1: Coming up, We're going to talk Tesla, which is building
Speaker 1: a large new battery factory in China in Shanghai, further
Speaker 1: cementing China's place at the top of the global energy
Speaker 1: storage supply chain. More with that next, sickem of the
Speaker 1: world of mask. Twitter has changed its description tag for
Speaker 1: MPR to government funded Media from state affiliated media following
Speaker 1: criticism last week. You probably saw this one. The company
Speaker 1: rewrote the label on Saturday, following pushback from MPR, which
Speaker 1: hasn't used the platform itself since April fourth. MPR CEO
Speaker 1: had called the state affiliated media label quote unacceptable. This
Speaker 1: is Bloomberg time now for Talking Tech. Open AI sending
Speaker 1: its eyes in Japan. The co found Racio some altman
Speaker 1: who's here. He says, the organization is looking at opening
Speaker 1: an office there and expanding Japanese language services. After meeting
Speaker 1: with the country's prime Minister, let's move to Uber now
Speaker 1: because it's Middle East unit is selling a fifty percent
Speaker 1: stake worth four hundred million in its Kareem super app
Speaker 1: to Emirates Telecom. Now, that's an Aberdabi based firm trying
Speaker 1: to reinvent itself as a global tech investor. And Tesla
Speaker 1: will build a large new battery factory in Shanghai the
Speaker 1: ev Makawar manufacturer those megapacks, those large scale energy storage
Speaker 1: units in the new facility, adding to its factory for
Speaker 1: evs in the area, and ed you're going to talk
Speaker 1: about that more. Yeah, I've got DNA Hole who covers
Speaker 1: all things Tesla for us here in San Francisco with
Speaker 1: me on set. You and I always talk about when
Speaker 1: we're trying to report out these things. It's not a surprise.
Speaker 1: Elon Musk has always said long term, we need more
Speaker 1: giga factories all over the world. But this one's quite
Speaker 1: interesting because it's in China. Yeah, I mean, Tesla is
Speaker 1: really doubling down on its investment in China at a
Speaker 1: time when the like tensions between Washington and Beijing are
Speaker 1: kind of at an all time high. And this is
Speaker 1: not super surprising. At Investor Day, last month, Tesla talked
Speaker 1: about the energy transition. They've always made it very clear
Speaker 1: that they are more than a car company. You know,
Speaker 1: for years energy storage took a backseat to the cars,
Speaker 1: but now we're seeing Tesla talk a lot more about
Speaker 1: the energy storage products. A lot of news from tests
Speaker 1: are over holiday weekend, which often happens. They cut prices
Speaker 1: again in the United States. Where and how and why?
Speaker 1: So they changed the prices on their website late Thursday
Speaker 1: night Friday as a market holiday, cut the X and
Speaker 1: asked quite a bit, you know, shipped off some prices
Speaker 1: of the three and the why. Musk has said that
Speaker 1: they're going to chase volume over margins, and I don't
Speaker 1: know if investors are super thrilled with that, but I
Speaker 1: mean he's made it very clear that in the short term,
Speaker 1: this is the way to go. We saw prices rise
Speaker 1: up quite a bit because of the chip shortage. Now
Speaker 1: they're coming back down and he's determined to maintain that
Speaker 1: pole position and he's going to cut prices to move
Speaker 1: on them. All right, Bloom bogs Downahole, who leads our
Speaker 1: coverage of all things Elon Musk, All Things Tesla. Welcome
Speaker 1: back to mow Med Technology. I'm Caroline Hide in New
Speaker 1: York and I'm med lod Low in Sam Francisco. We've
Speaker 1: got some thin trading, to be honest, amid the holiday weekend,
Speaker 1: but most major equity indicias lower a lot of trading
Speaker 1: driven around FED bets and has that one hundred off
Speaker 1: by a percentage point. Also, the US listed shares of
Speaker 1: China Tech down more than one and a half percent,
Speaker 1: sort of underperforming the market where there's outperformances in the chips.
Speaker 1: Look at the Philadelphia semi conductor index up eight tens
Speaker 1: or one percent. When you look at the individual movers, Caroline,
Speaker 1: you kind of understand why. It's the memory chip makers
Speaker 1: really pushing higher significant single digit gains that dragging up
Speaker 1: that index, all after Samsung said on Friday that it
Speaker 1: was going to cut production and memory chips to a
Speaker 1: meaningful level take some of that supply glut out of
Speaker 1: the market. Where there is weakness is TSMC, which, as
Speaker 1: you know over the weekend said that it essentially has
Speaker 1: had its second consecutive coursely sales miss against expectations. But
Speaker 1: how quickly things are changing this sector from supply glut
Speaker 1: to no demand. What is going on. Yeah, and ultimately
Speaker 1: the self prescriptions that are going on at Samsung cutting
Speaker 1: its production and TSMC actually cutting its capital expenditures. That's
Speaker 1: the game. With Joanne Phoene, Partner Portfolio manager and Advisors
Speaker 1: Capital Management, who really we looked to you for the
Speaker 1: expertise in the chip sector right now, joe Anne, because
Speaker 1: should we expected all of this? Yeah, Caroline's good to see,
Speaker 1: you know, the challenges of the chip industry you're facing
Speaker 1: look like they are coming to an end, which is
Speaker 1: the good news. The cuts at Samsung for a manufacturing
Speaker 1: capacity is always part of a big bass boom cycle
Speaker 1: in the memory chip world. We're seeing that play out.
Speaker 1: But the Apple and TSMC news, you know, it has
Speaker 1: some people wondering just how far down the PC sales
Speaker 1: are going to ago and how long that part of
Speaker 1: the world is going to take to recover. And this
Speaker 1: becomes circular in a way, and are we kicked off
Speaker 1: the conversation of today really discussing some of the Apple issues,
Speaker 1: the fact that they're seeing a slowdown in PCs that
Speaker 1: just is highlighting the electronics demand that diminishes and ultimately
Speaker 1: that hits chips. I think John, this is where It's
Speaker 1: hard to understand what's going on, right, Is this a
Speaker 1: demand issue for the end market memory chips go into
Speaker 1: PC's are the consumer electronics? Is this chip customers going
Speaker 1: through inventory and that there is a supply gout? What
Speaker 1: for you is the single biggest factor right now that's
Speaker 1: hurting the chipmakers. You know, if for those exposed to
Speaker 1: the consumer PCs and smartphones, it's certainly a demand decline
Speaker 1: right after the surgeon purchases during the works of the pandemic, right,
Speaker 1: we're seeing them digest that and wait till they need
Speaker 1: to upgrade their PCs and their smartphones. So I think
Speaker 1: demand is largely driving what's going on bulth with Apple
Speaker 1: on TSMC and have already gone on at the other
Speaker 1: PC manufacturers. The latest data from IDC just can firms
Speaker 1: that Apple's higher priced PCs are now seeing that same
Speaker 1: kind of drop off. And don't forget we also saw
Speaker 1: news recently that Apple was cutting its demand for chips
Speaker 1: out of TMSMC, particularly the newest chip, the M two,
Speaker 1: and that you know, was also a signal of what
Speaker 1: this was likely to be for them for the first quarter.
Speaker 1: You've taken us there. It's the next generation technology The
Speaker 1: first thing that Caroline thinks of Joan when she wakes
Speaker 1: up is artificial intelligence, and when she goes to sleep,
Speaker 1: artificial intelligence is all any of us think about the moment.
Speaker 1: But in the chip sector, that's what's driving sales right now.
Speaker 1: You look at Vinvidia as the kind of prime beneficiary
Speaker 1: of that. Is that an area that excites you as
Speaker 1: an investor, Yeah, ed, you've just bridged to the exciting
Speaker 1: area of the chip world, which is high performance computing,
Speaker 1: the generative AI. And don't forget there's also a broader
Speaker 1: demand for chips out there in industrial applications and medical
Speaker 1: care applications. So while we do see right the PC
Speaker 1: and smartphone space in a demand and driven decline and
Speaker 1: all the inventory problems that came along with that, we
Speaker 1: continue to see a secular that is, multi year growth
Speaker 1: in the other areas of a more advanced chips demand,
Speaker 1: like for Invidia chips, like for servers. We know data
Speaker 1: centers are continuing to expand we have all this traffic
Speaker 1: running across the Internet, and now all of this demand
Speaker 1: for really high intensity computation driving the demand, for example,
Speaker 1: for Invidia chips. So one has to look more broadly
Speaker 1: at the chip space and not just focus in on
Speaker 1: the PCs, which we know they're encyclical decline, but there
Speaker 1: are plenty of opportunities for our companies to continue to
Speaker 1: grow through those other areas. I'm saying it's a family affair,
Speaker 1: and my husband did all of the Easter egg hunt
Speaker 1: clues this weekend VACHACPT and nearly blew my mind. But
Speaker 1: so to us, John, I mean about aside from the
Speaker 1: excitement of ultificial intelligence, there was some hope, some silver
Speaker 1: linings coming from for example IDC saying some of this
Speaker 1: pullback means maybe TSMC and the like start to get
Speaker 1: where they manufact show in order as we start to
Speaker 1: see a bifurcated world of China US as the US,
Speaker 1: but also that things are going to pick back up
Speaker 1: in twenty twenty four. Yeah. I think that's fair and
Speaker 1: one of the things we've been looking at as a
Speaker 1: potential positive driver for these markets. In addition to eventual
Speaker 1: stabilization and ultimately cuts in interest rates, which will help
Speaker 1: these higher growth stocks to recover as they have been
Speaker 1: right since late last year. The next thing to come,
Speaker 1: we do believe is going to be a recovery in
Speaker 1: earnings outlooks for the second half of this year and
Speaker 1: in twenty twenty four, and you know, you saw that
Speaker 1: Micron report and it was terrible, but yet they said, hey,
Speaker 1: we're looking at the end of this inventory clearing cycle.
Speaker 1: Things are going to get better. And so I think
Speaker 1: that ultimately the tech investor is recognizing that cyclical declines
Speaker 1: are temporary. We're probably at the worst it's going to get.
Speaker 1: Probably see companies come out with almost terrible earnings here
Speaker 1: for the first quarter and cautious guidance, but they're probably
Speaker 1: going to point beyond that and say, yeah, this is
Speaker 1: a cyclical decline. We still have these structural drivers. Let's
Speaker 1: everybody look forward to that, because these companies still have
Speaker 1: a lot of earnings power, and earnings got ahead of
Speaker 1: them once we get through the circlebal decline, and and
Speaker 1: these are companies that have to think for the very
Speaker 1: long term, particularly when I think about R and D.
Speaker 1: Well like the point you be made about where they manufacture. Sorry, Joam,
Speaker 1: So it's just you know, one thing we haven't talked
Speaker 1: about recently is the Chips Act. You know, you have
Speaker 1: Intel trying to reinvent itself on the foundry side, but
Speaker 1: also TSMC. Looking at Arizona as an investor, is there
Speaker 1: an opportunity to put your money among those names that
Speaker 1: are due to get public money support? Right is what's
Speaker 1: happening in the Chips Act, the rethink on production and
Speaker 1: supply chain. You know, I think that's going to be
Speaker 1: a relatively minor driver of the stocks. It certainly gives
Speaker 1: Intel a lifeline to get it past this technology, you know,
Speaker 1: stumbling walk they've gone over. Gives them time potentially to
Speaker 1: get into the foundry business. We're not so excited about
Speaker 1: that name in particular, but the other ones, though. What
Speaker 1: you can start from these subsidies is ultimately decline in
Speaker 1: the depreciation that they'll have to take against these new factories,
Speaker 1: and that should help sustain their margins. That's a good thing,
Speaker 1: but it wouldn't drive our investment thesis. Overall. We still
Speaker 1: want to look to see whether they have a leading
Speaker 1: edge in the chips they're producing or designing, and whether
Speaker 1: they're serving the right markets, the ones that are really growing.
Speaker 1: So I wouldn't use that as a real driver of
Speaker 1: an investments at this point, but it should help sustain
Speaker 1: some margins. And one company, of course, we were shining
Speaker 1: a line in the companies that do well on the day,
Speaker 1: the Microns, because Samsung's going to pull back in terms
Speaker 1: of its supply Joan. But I remember speaking to the
Speaker 1: CEO of Micron, who a year or so ago was saying,
Speaker 1: boom bus cycles that're over, weren't it for the long term.
Speaker 1: We're going to see IoT, we're going to see autos,
Speaker 1: and we're going to have this perpetual need for chips
Speaker 1: that doesn't seem to ever work out. That wasn't the
Speaker 1: great hope, and we heard it from many companies, from
Speaker 1: Texas Instruments to Micron to others. I think, though, we
Speaker 1: have to take a little bit of a step back
Speaker 1: recognize two things. One, it is the case that the
Speaker 1: demand in the use of chips is far more diverse
Speaker 1: now than it was the case in the nineteen nineties
Speaker 1: and the first decade of the two thousands is what
Speaker 1: happened to disrupt that whole thesis that chip demand was
Speaker 1: more diversified and therefore there'd be less of these cycles,
Speaker 1: which in the past had really been driven by the PC.
Speaker 1: And when the new chip came out, what happened was
Speaker 1: we hit a pandemic and the pandemic coordinated the purchases
Speaker 1: by lots of companies and lots of people of new
Speaker 1: PCs and new smartphones, and now we're seeing the backside
Speaker 1: of that where they're now pausing since they just bought
Speaker 1: a bunch of new stuff and they're waiting. We didn't
Speaker 1: expect to see that kind of a shot to the
Speaker 1: PC and smartphone cycle that really probably only came about
Speaker 1: because of the pandemic. I think once we get beyond this,
Speaker 1: I think that more diversified and market dynamic will come
Speaker 1: back into place and we'll see much smoother cycles going forward.
Speaker 1: Or the chip industry as a whole. Joan Poeni partner
Speaker 1: and portfolio manager had Advises Capital Management. Someone Caroline on
Speaker 1: the research and investing side has covered that sector for
Speaker 1: a long time, and it's interesting to get the kind
Speaker 1: of real time views on that newsreaction from an investor's perspective.
Speaker 1: Now coming up, betting on real world industries to redefine
Speaker 1: the next decade of tech. We're gonna be joined by
Speaker 1: a CLIPS founding partner, Leo Susan for more in that
Speaker 1: next character. Yeah, let's just check in what's happening in
Speaker 1: the world of crypto, there was this key story if
Speaker 1: you're following the FTX fallout, well, the debtors, they've just
Speaker 1: been releasing their first report since the collapse, and it
Speaker 1: doesn't paint a pretty picture. Unsurprisingly now, the report says
Speaker 1: that the company lacked fundamental financial and account and controls,
Speaker 1: stifled descent within the company, and that top members even
Speaker 1: joked internally about their tendency to all lose track of
Speaker 1: millions of dollars in assets. Former CEO Sam Bankwinfried faces
Speaker 1: trial in October after pleading not guilty to forward and
Speaker 1: campaign financial law charges. Let's just check in though, on
Speaker 1: the broader crypto's scene right now, because bitcoin the strength
Speaker 1: still there. We're at twenty eight twenty eight and a
Speaker 1: half thousand now, and even if getting a little bit
Speaker 1: of a bid despite strength in the US dollar today,
Speaker 1: we're all thinking about Wednesday. We're all thinking about the Shanghai,
Speaker 1: the ongoing nature of a move from proof of work
Speaker 1: to proof of steak with Ethereum, and some of the
Speaker 1: unstaking of some of those eighteen million ether that have
Speaker 1: been locked up for a few years. From New York,
Speaker 1: from San Francisco, there's a Bloomberg have private markets become
Speaker 1: a victim of their own success. That's what new research
Speaker 1: from Bloomberg Intelligence would suggest. As a surgeon fundraising more
Speaker 1: than doubled in recent years during the error of low rates.
Speaker 1: This environment curvated created some perverse incentives for valuations, right
Speaker 1: as cash rich firms chase deals. B i AN Lists,
Speaker 1: in a note published today, say they now expect institutional
Speaker 1: investment in private equity and venture capital to cool off
Speaker 1: as restructuring marked down, slowing dry powder for deals and
Speaker 1: rising interest rates force basically a reevaluation of that risk
Speaker 1: reward equation. Now, there are some firms out there that
Speaker 1: are still raising money, powering through with new fund. Silicon
Speaker 1: Valley firm ECLIPS just raise one point two billion dollars
Speaker 1: for two new funds, both dedicated to backing startups Caroline
Speaker 1: that are trying to modernize physical industries. Fund five will
Speaker 1: focus on early companies, while Early Growth Fund two or
Speaker 1: back more mature companies. Delighted to say that the Clips
Speaker 1: founding partnerle Or Susan joins us, Now, this is interesting.
Speaker 1: You want to back startups that make stuff, actual physical stuff.
Speaker 1: Why why is that so appealing to you? Because, first
Speaker 1: of all, thanks for having me focus, and you know,
Speaker 1: it's because it's matter and the end of the day,
Speaker 1: we'll live in the physical world. Seventy five trillion out
Speaker 1: of thee hundred trillion dollars, it's industries the belt physical
Speaker 1: and those industries did not add the same digital ons
Speaker 1: formation that we are sol familiar in the world of
Speaker 1: Internet and etc. We want to digitize in those industries
Speaker 1: because I think it's matter and because I think the
Speaker 1: impact from financial point of view is going to be tremendous. Leo,
Speaker 1: there's a name at your firm familiar to me, Charlie Mwonghi,
Speaker 1: who was an executive at Riving, and that got me
Speaker 1: thinking about your strategy. A lot of the areas you're
Speaker 1: looking at require scale and they're very capital intensive. Does
Speaker 1: that make them more risky as a VC investment? You know,
Speaker 1: that's actually kind of was the perception. The reality is
Speaker 1: to technology reached a point right now that you actually
Speaker 1: don't need the same amount of capital you needed before
Speaker 1: because you just goes talked about semi conductor. I can
Speaker 1: use semi conductor of the shelf. I can use contract
Speaker 1: manufacturing of the shelf. I can use the same open
Speaker 1: source and cloud infrastructure that our friends in the area
Speaker 1: of Internet is being developed, and I can apply that
Speaker 1: in the physical world, meaning the cost of capital and
Speaker 1: the needful capital went down dramatically and the upside is
Speaker 1: a seventy five trillion. So what we're seeing is a
Speaker 1: new area of our opportunities for new founders to come
Speaker 1: and change the industries that matter. You know, Caroline, what's
Speaker 1: so fascinating. We're talking on a daily basis about artificial intelligence, software,
Speaker 1: Web three again software. Now, there must be a chunk
Speaker 1: of investors out there that are interested in getting into
Speaker 1: physical assets, physical companies building real stuff, even though at
Speaker 1: the moment, for a lot of institution investors, you were
Speaker 1: just saying it's a time to rethink your allocation to
Speaker 1: private markets. And therefore, how hard or indeed easy was
Speaker 1: it to raise money? What the LPs look like? Yeah,
Speaker 1: we raised money from a nonprofit institution in the United
Speaker 1: States that will be our endowment foundation and pensions hospital system.
Speaker 1: I probably needs to say right now, Oh, it was
Speaker 1: really easy. We did it in two months. We will
Speaker 1: oversubscribed all of the things that probat of this is
Speaker 1: will say that's true, but that's actually another point. The
Speaker 1: point is. We are seeing some of the most amazing
Speaker 1: founders right now in the market. Wants to be ellen mosques,
Speaker 1: They wants to go cars, they wants to build rockets.
Speaker 1: They understand that the impact of technology can be much
Speaker 1: more superior in the physical world than what we've been
Speaker 1: trained in Silicon Valley. It's all about SaaS, It's all
Speaker 1: about recount revenue. That's just not true anymore. Where are
Speaker 1: these founders that you're seeing. This is not a Silicon
Speaker 1: Valley things. You need agriculture in China, and you need
Speaker 1: logistics in Austin, Texas. You needs manufacturing in Berlin, and
Speaker 1: you need industrial systems in Abu Dhabi. This is a
Speaker 1: global efforts to take the industries the powering our life
Speaker 1: and digitizing them. And I'm telling you that some of
Speaker 1: the smallest people right now are not doing any more
Speaker 1: only crypto or SaaS or enterprise software. They are taking
Speaker 1: the long roads to go and build companies that will matter,
Speaker 1: that will move the economy into a digital phase. Lee
Speaker 1: or you reference China, so you do plan to take
Speaker 1: some of your funds raised from US based investors to
Speaker 1: deploy into startups that are based in China. We are
Speaker 1: one hundred percent focus on Today in the United States,
Speaker 1: we are all based in Carlo, alto thirty of US,
Speaker 1: and we are focusing on investing in the domestic area.
Speaker 1: I will tell you that we're spending most of our
Speaker 1: time on onshore manufacturing, semiconduct, those batteries, defense systems that
Speaker 1: are very domestic oriented. And this is currently where is
Speaker 1: our focus on. But that's not mean that there is
Speaker 1: no opportunities in China real quickly. Or there is one
Speaker 1: company that's looking for some money and that company is
Speaker 1: Virgin Orbits. First of all, are you interested in investing
Speaker 1: in Virgin Orbit? And second of all, how do you
Speaker 1: do due diligence on the physical space? How hard is that?
Speaker 1: So we all operate those that operating those industries from below,
Speaker 1: Revian Apples, some Sara, flex Ge and many others, and
Speaker 1: that's kind of I think would bring us the edge
Speaker 1: to be able to not only diligence in those companies
Speaker 1: when they have two guys in a presentation, maybe a dog,
Speaker 1: but also to help them building when they're scaling into
Speaker 1: commercialization and then hopefully into the public market. One day
Speaker 1: on the Virgin I will likely pass ah exclipts founding partner, Leo,
Speaker 1: You've been so fruitful in all the rest of your answers.
Speaker 1: We thank you for politely deciding not to answer, Leo.
Speaker 1: Susan Senator Elizabeth Warren and Representative Alexandria Ococia Cortez are
Speaker 1: demanding answers over Silicon Valley banks close relationships with some
Speaker 1: of its customers now in let us since Sunday I'm
Speaker 1: reviewed by Bloomberg. The Democrats are asking fourteen of the
Speaker 1: largest depositors with SVB about the nature of their connections
Speaker 1: with the bank, including where the board members actives investors
Speaker 1: when they received special benefits such as lines of credit
Speaker 1: from SVB. Well, Hannah Miller wrote that story. We're very
Speaker 1: pleased to welcome her to the show and anyone responding
Speaker 1: to these letters so far, Yeah, so far, I've only
Speaker 1: heard back from Robox, so we haven't seen many responses
Speaker 1: come through yet. But it'll be interesting to see whether
Speaker 1: these companies choose to answer these letters, and if they don't,
Speaker 1: what Warren and AOC will say. You know, Hannah, I
Speaker 1: will never forget that weekend, the Saturday and Sunday following
Speaker 1: Silicon Valley Banks collapse. You and I were working together right,
Speaker 1: and we very quickly learned that actually many, in many
Speaker 1: cases depositors did use other services for the bank. What
Speaker 1: is that the kind of CrOx of what Warren is
Speaker 1: trying to find out here. Yes, so Silicon Valley Bank
Speaker 1: was just this cherished institution among venture capitalists and tech
Speaker 1: startup founders, and they had a wide, wide range of services.
Speaker 1: You know, you could go to them for your own
Speaker 1: personal finance as well as those for your company. So
Speaker 1: the contagion here that was felt when SBB collapse was
Speaker 1: really widespread and at Warren and AOC want answers as
Speaker 1: to whether these personal relationships that SVB had with founders
Speaker 1: and vcs actually contributed to its collapse. It's interesting that
Speaker 1: they're going to a lot of the big now public
Speaker 1: companies for these sorts of answers. Is the real end
Speaker 1: person they're trying to label here the VC community. I
Speaker 1: think they are targeting the VC community. I mean, both
Speaker 1: Warren and AOC have been extremely outspoken and critical about
Speaker 1: what happened with SVB. There are concerns here that you know,
Speaker 1: SVB was so willing to provide short term funding, you
Speaker 1: know that it may have contributed to instability at the bank,
Speaker 1: so they want to closer look. They want to see
Speaker 1: how you know, SVB coddled its clients. I think that
Speaker 1: was the word that Warren used. So it's very interesting
Speaker 1: to see how this will play out. All right, Bloombogs
Speaker 1: Hannah Miller, thank you very much for your reporting. Now
Speaker 1: we've been talking about it and it's going viral. The
Speaker 1: Super Mario movie. It just topped the box office and
Speaker 1: it's the biggest opening weekend for a film so far
Speaker 1: this year. Super Mario is released on Wednesday to take
Speaker 1: advantage of the spring break in East the holidays, and
Speaker 1: over the five day period it took in two hundred
Speaker 1: and five million dollars domestically according to comScore, and with
Speaker 1: a global hall of three hundred and seventy eight million,
Speaker 1: it's the biggest opening of any movie so far in
Speaker 1: twenty twenty three is out in Japan. Yet that was delayed,
Speaker 1: there wasn't it. That's the big question. Delay because it's
Speaker 1: a tough crowd to please, and still they rake in
Speaker 1: all of that money globally, quite astounding. Have you watched it?
Speaker 1: I haven't, but I will, Okay, I might wait until
Speaker 1: it's more for a family affair, but great amount of
Speaker 1: focus on that. I didn't even get to ask you though,
Speaker 1: ed whether you've picked up your fire Festival two tickets.
Speaker 1: I wish we had got this in. I haven't picked
Speaker 1: up my fire Festival too tickets, But that is certainly
Speaker 1: something that's taught us. Bound Twitter right now, don't worry,
Speaker 1: We'll go and do a little video for social media.
Speaker 1: Come follow us at Bloomberg Technology. Meanwhile. That does it
Speaker 1: for this edition of the show Bloomberg Technology. Yeah, it
Speaker 1: was packed, big focus on markets and chips. You can
Speaker 1: recap on the podcast Apple, Spotify, iHeart Bloomberg, wherever you
Speaker 1: get your podcasts. From New York, from SF, this is
Speaker 1: Bloomberg