Memory Chip Frenzy Sends SK Hynix, Micron Into $1T Club

0:00What if you could have more wins? More support? More sound effects? At LPL Financial, we like the sound of that. Because LPL offers more. Advisors, what if you could have more ways to help your clients? Ready to invest? What if you could find an advisor that really understands you? When it comes to your finances, your business, your future, at LPL, we ask, what if you could? Paid advertisement. Investing involves risk, including potential loss of principal. LPL Financial LLC. Member FINRA SIPC. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results.

0:35At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business.

1:27IBM. Here today, roam tomorrow. Join now at sinesta.com. Terms and conditions apply. Bloomberg Audio Studios. Podcasts, radio, news. This is Bloomberg Business Week Daily. Reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Business Week Daily Podcast with Carol Masser and Tim Stenevek on Bloomberg Radio. Ian King is Bloomberg News U.S. semiconductor. He joins us. Semiconductor reporter. He joins us from the Semiconductor Bureau.

2:11He's not our semiconductor. He's our semiconductor reporter. Not yet, Ian. Although he thinks just as quickly. He thinks just as quickly. Maybe one day soon they will make a robot, Ian King. But today we are glad to have the real human being, Ian King. Ian, we're glad to have you because you have such great experience, not just covering different semiconductor cycles, but also living in Korea earlier in your career and just seeing what's going on in the Korean market right now with memory chip stocks. I mean, what is your reaction here? Have you ever seen anything like this in your career? To the extent that they've gone up?

2:42Absolutely not. We've certainly seen booms and busts for these companies along the way. I was there when Hynix was actually created as a forced merger by the government. This was two companies, LG Semiconductor and Hyundai Electronics that were sort of on their way out of business. Things were that bad. And now in combination owned by the SK Group, it's worth more than a trillion dollars. This was not something that anybody would have believed even a few short years ago. Do you think that growth is sustainable and there are more people, more whispers, there's still whispers talking about bubbles, not just in AI, but in these chip manufacturers.

3:23I who's now adapted my algorithm online to feed me finance memes. And there's one going around talking about all these trillion dollar valuations and how that is worth more than all the farmable land in Australia. And they go, it's fine, it's fine. We're making money. We're making money just by. Are there real concerns here about these valuations and how big they're getting? I mean, there absolutely has to be. I mean, we've seen an enormous amount of money come flowing in, but that's very much for the market to decide. And if you look at some of the other metrics, these companies are actually cheap.

3:55What a trillion dollar company that's cheap? But look at the forward PEs for these companies. We've got one, I think Micron's about 15. You know, Hynix is less than 10, which means that Wall Street analysis believes that these companies fundamentally have a massive earnings growth spurt ahead of them and that investors haven't actually caught up. Who knows? Obviously, we don't know. And as I've said, we've seen massive boom and busts in this industry in the past. It wasn't, what, three years ago, and they're actually losing money. So who knows? But there is certainly a groundswell of opinion that believes this time is different, arguably the most dangerous words that anybody can ever say.

4:36That's what people believe. I'm glad you couched it with that, Ian. Hey, I do want to know a little bit just about sort of the chip ecosystem when we're talking about these memory names. We had Eric Wiener join us a little earlier, along with Sarah Hunt over at Alpine Saxon Woods, who covers markets. And, you know, we kind of had this exchange where they talked about, yeah, higher memory prices. They're a good thing for, you know, SK Hynix and Micron and a handful of other companies, but not necessarily a good thing for the companies that are the customers. Talk a little bit about the way that it's affected those companies, because we have seen some companies such as Apple.

5:12You know, they're able to navigate this. But who are the losers when memory gets this expensive? Yeah, I mean, 85 % gross margins at these companies tells you all you need to know about their pricing power. Amazing. And that's for hardware. That's crazy. Those are like software. A kind of 12-month gain is more than 1 ,000%. That's insane. And these companies own manufacturing facilities as well. They're not just designing these chips and outsourcing. They actually own these multi-billion dollar plants and they are running them at that kind of level. So this is obviously a great market for them right now.

5:50But to answer your question, PC market, we're going to see HP report today, Dell, I believe tomorrow. So these guys, the prices of what their components has gone up massively. Obviously, we've seen the influence on the smartphone market. Companies like Qualcomm have had to rein back their outlook for the number of devices that get built But because we've seen this massive shift of production into the higher value, higher margin, sort of high bandwidth memory that's going into these massive data centers. So that's, you know, supply and demand is elastic. These companies, there aren't really new players coming into the market because you can't because of the high barriers to entry.

6:29So that's what the market dynamics are right now. If you're a device maker, then, you know, times are tough, right? Your margins are getting squeezed. And we've also seen the impact some of these companies have had on the South Korean economy and even the COSPI, which overtook the U.K. and then overtook Canada Stock Exchange and is now, I think, the seventh largest in the world. Talk to us about what that does for the economy overall in South Korea. And there is also this concern that if the Strait of Hormuz stays closed, this energy crunch is going to be acutely felt in Asia first. Any chance that that's going to impact these huge growths that we've seen in some of these companies?

7:07I mean, the company that we've not mentioned is Samsung Electronics, which is actually a larger memory manufacturer than both of these guys. And obviously, that's a South Korean company as well. So the combination of SK Hynix and Samsung's success has clearly had a massive impact. Samsung has always been central to the Korean economy and the Korean story. This is arguably their first world-class company that proved that the export economy could work for Korea and helped with their success. And we've seen that filter into other areas of their economy. On the flip side, yes, South Korea is an energy importer.

7:44It has nuclear power, but it's still heavily dependent on outside sources of energy. That's going to be cost and negative for these companies. But, you know, it's not going to hold back production of memory chips at Samsung or SK Hynix. You know, they're going to go full ahead of that. We've seen them even get over their historic kind of tension with the labor unions there. You know, we've found a way and, you know, everything's moving forward. That's an economy that's very focused on this success story. You know, Thomas Thornton over at Hedge Fund Telemetry, he joined us last weekend. He just sent me an IB on the terminal.

8:20He said that SK Hynix and Samsung now are 55 % of the total Korean market right now. I mean, what was the Korean market like when you were covering these stocks earlier in your career? No, I mean, that's a very good question. Samsung went from being a very important company to being 20 % of the market. So Samsung's kind of position in the spotlight has kind of ebbed and flowed over the years, but it's always pretty much been there. SK Hynix was kind of the sort of weakling younger brother that you kind of hoped would survive, but kind of flirted with going out of business for a long time. It's, you know, time in the spotlight is very, very recent and very, very immediate based upon this recent phenomenon, this AI surge.

9:12So a lot of what is happening in that South Korean market is dependent arguably more than any other market on whether this AI story pans out or whether, as you mentioned earlier, this is all a bubble and we're all going to go back down again soon. Oh, we got to end it there, Ian. I'm just kidding. We're not going to end it on the bubble comment, but one final question on a potential bubble. We have 20 seconds left. Given that you've covered different cycles, what would you say about where we are right now? The extent of how far it's gone up exceeds all price cycles, and that creates, obviously, downside risk to an extent that we've never seen before as well in this particular area.

9:51Ian King, he covers semiconductors for Bloomberg News. Intel, AMD, Texas Instruments, Qualcomm, Applied Materials, but we made him go outside of the U.S., and we made him go to memory chip companies, too, and he does it all. Ian is out there in our Bloomberg Bureau in San Francisco. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

10:37At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. Support for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds, and crypto. And they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called Generated Assets.

11:16It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific like biotech companies with high R &D spend, small cap stocks with improving operating margins, or the S &P 500 minus high debt companies. Chances are there isn't an ETF that fits your exact criteria. But on public, you just type in a prompt and their AI screens thousands of stocks and build a one-of-a-kind index. You can even backtest it against the S &P 500. Then you can invest in a few clicks. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio.

11:52That's public.com slash market. And paid for by Public Holdings. Brokered services by Public Investing, member FINRA SIPC. Advisory services by Public Advisors, SEC Registered Advisor, crypto services by ZeroHash. Sample prompts are for illustrative purposes only, not investment advice. All investing involves risk of loss. See complete disclosures at public.com slash disclosures. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube.

12:28All right, Tim, I have a question for you. Were you a mall rat? I mean, everyone in the 90s was a mall rat. There wasn't that much to do in the 90s. Southern California, 1990s. Malls. Yeah, skateboarding. Did you have a puka shell necklace? For a very brief time, I did. And there might be pictures to prove it. Very brief. All right, I'm a little sad we don't have those. I should have dug those in advance. It was like 6th grade, 7th grade. All right, we all make questionable fashion decisions in middle school. I mean, listen, they were the thing. And one of the it brands when we were in high school, of course, was PacSun.

12:58The company has gone through a lot of changes. They filed for bankruptcy in 2016, but now it's back, it's rebranded, and it's thriving, and it's capitalizing on a couple things, including this wave of millennial nostalgia and a new generation of shoppers who are more socially aware, but no less fashionable than we were when we were their age. PacSun CEO, Brianne Olson, joins us now. Her book, Co-Created, here we go, we got it right here, talks about the turnaround of the company and how much to my joy, she says, brick and mortar stores are not dead. They just need to reinvent themselves. Thank you so much for coming on.

13:31You were telling us at the break, you've been at the company a long time. And in your time, I think you said 17, 18 years in that time, how has the company evolved into what it is now? Yeah, I've been at the company almost two decades. And when I joined, we were a surf, skate, legacy retailer. And today, after a transformation of almost two decades and a real focus on the power of co-creation, we have successfully moved from being a retailer where PacSun's brand was just on the outside of the store to an actual brand that young people today love. And so 50 % of what we sell in a PacSun store today now carries the PacSun label.

14:10How does that work in a world where, and look, I'm going to totally age myself here. Oh, we've already, we're both there. You know, when I, when I, when I drop my kids off at school they're they're young they're three and seven but when i drop them off at school i walk by a middle school and at the middle school these kids literally are dressing like we used to dress when we were in middle school it is crazy it's like yeah the wide leg jeans like the same oversized sweatshirts like the platform chunky sandals here's the difference though they are all glued to iphones and we didn't have that no and we didn't have that until relatively recently again not to date myself um how do you reach a consumer that is glued to their phone.

14:48So as a brand centered at the youth, I actually think all of these touch points from a digital standpoint offer us a real advantage. If you lean in and meet the customer where they are, PacSun has 2 million followers on TikTok. We're on Reddit, we're on Discord, on IG. There's so many different ways to engage with the consumer today, YouTube shorts. And so I talk about it as this constant listening loop and listening feedback. If you want to know something in live time, you can just engage with the consumer. And so the premise of my book, Co-Created, is really about treating the consumer not like an audience.

15:25We're not marketing to them. We're not building product to then market to them. Instead, on the reverse, we're building with them. So we've brought the consumer in, and we are actually co-creating the future of our brand with these young people. How does that work in the creator economy? We've seen so many brands kind of fumble those opportunities. Is there a specific strategy to taking advantage of people who are exciting about brand and bringing them in in a way that feels not exploitive, but communal and productive? Yeah, I think we've had tremendous success in the creator economy. And really, the brand has to shift the notion of control.

16:05So you have to relinquish. But that's really hard because you get paid to have control. We have to relinquish some of the control and build what I call brand and community trust. And so by empowering these young people to be your storyteller, you are in essence enabling them not only to create economic ability for themselves, but also to storytell and amplify in a way that is otherwise impossible. And in 2023, a PacSun fan and customer, Lila Biggs, based in Nashville, Tennessee, who had just amassed 5 ,000 followers on TikTok, went to her local Nashville store, bought a pair of jeans, created a video in her bedroom.

16:47She has 5 ,000 followers. She sold 11 ,000 pairs of jeans in the next 36 hours. And so it's the power of the algorithm. It's the power of authentic storytelling and really allowing to lean into your, into your community and empower them. So on that, if you look at the Paxun website right now, there's, you know, a dozen vertical videos that talk about, it says Paxun styled by you. are these coming from how does this work like are these are these collaborations that you have with like actually actual normal people are these like thought up in a marketing department and they're like made to look like they'd see vertical video like are these actually like coke like co-creating majority of the videos you would see on our site are actually co-creation so then we seek permission from those creators like folks will tag you and then you reach out absolutely and on tiktok with the open creator platform, we actually don't select any of the people who are then advocating or promoting the brand.

17:45They are selecting and we say everyone is welcome. And there's a real magic and synergy that happens in that. We're speaking with Brianne Olson, the CEO of PacSun. She's the author of the new book, co-created the cultural strategy that redefined PacSun. Christina's got it. Wait, I'm looking at the wrong camera again. Sorry, it's not my usual studio. There it is. There it is. Talk to us about how you manage a brand turnaround because the company did file a bankruptcy in 2016. And you were there. You were there pre-bankruptcy and post. And retail turnarounds are hard, partially because you do have a legacy that can be either a good or a bad thing.

18:18Reinvention can be really difficult when customers have a certain way they think about your brand. How do you do that? How did you manage that? And how do you think it's been successful? So I've been in the CEO role just over three years now, and I've been with the brand 18 plus years. And so the turnaround, I would say, was absolutely a team effort. And as you'll see in the book, Co-Created, the fingerprints and the stories of so many different people, brands, creators, and leaders within our organization and our brand associates are a part of this beautiful story of Co-Creation. But the real honest truth is you have to do the inside work first.

18:53and we had to do a lot of re-scrubbing of our structure, our internal organization, our operating system, how quickly we were getting product to market, the silos that had existed in our organization for a long time. And we did that by leading with purpose. And I think a purpose-led brand can perform better and our results have followed from the moment we established our purpose, which is to inspire the next generation of youth and create community at the intersection of fashion, sport, art, and music. we have really been able to rally both our internal teams and our external constituents, which include our community, brands, creators, all of the stakeholders.

19:33I want to talk about some of those stakeholders that you just mentioned, the brands specifically. If 50 % of what you're selling is packs unlabeled, then how do you ensure the brands that they're going to be given, both virtually and physically, shelf space that has prominence? Yeah, I think listening to the consumer, leveraging data, leveraging our Youth Advisory Council, leveraging our Paxson Youth Report, which surveys 6 ,000 young people, these are ways that we can listen in a more efficient way. And then ensuring that we're being true to our purpose and our pillars. So we have a longstanding relationship with the Metropolitan Museum of Art.

20:13The misconception is that young people don't care about the arts. but what we've been able to prove year after year is that actually young people do care about arts and they care about the fine arts and they care about self-expression and so we were very confident that this collaboration and co-creation would work similar to formula one it's hot now but we started working with formula one almost four and a half five years ago so i think really ensuring that we're staying at the pace of culture and we're moving at the speed of culture ensures that we stay that one step ahead and ensures relevancy for the products and brands that we curate and bring into our store.

20:52You said you have an annual youth report. What are some of the surprising takeaways when you read that report each year? What are some of the things that stand out that surprised you even though you've been in this business? Yeah, so last year in the youth report serving 6 ,000 young people, Gen Alpha and Gen Z, one of the things that came out was that music is the most important piece of their life in terms of self-expression and fashion. And so it ranks higher than fashion. And so I think music is this through line for people to express themselves, and it's variable and fluid, right? So I think that was a big kind of unlock.

21:29Another unlock was mental health. And mental health was both the largest challenge but also opportunity when you spoke to young people above physical health and academia. But if you really look at it, I think it actually shows true optimism because these younger generations are willing to lean in. They're vulnerable. They're having the conversations. And they want to have the conversation also in the workplace. And so I think it's giving us an opportunity as brands and corporations to really rethink our social responsibility and how does that tie into our corporate responsibility. And so I think the youth report from a data standpoint and deeply understanding the emotive reasons that consumers are shifting their buying patterns, shifting consumption patterns, was absolutely important to kind of strategizing our path forward.

22:19We're going to talk more. We're going to do some news, and then we'll come back and talk more with you. Before we do that, though, I want to talk, and we'll talk retail. Before we do that, though, I just want to go back to marketing and hear from you about the mix of organic marketing versus paid. Can you just give us, like, what percentage is organic? what percentage is paid? We're at a pretty even 50-50 split. And we did bring all of our paid teams in-house. So we're not leveraging any agency. And that is a big pivot and has proven to have significant results because the people working on the team are living and breathing the brand and listening to our consumers.

22:55So I think that's the biggest fundamental shift that we've made. And then what are they doing on social media to find those reliable voices, those people you want to partner with? I think first, the first level of partnership is looking at who's already talking about your brand because they are the authentic storytellers. So that is usually our first step in identifying a collaborator or co-creator. Okay. We got a few more minutes with you. I want to talk retail. I want to talk about the future of the company. Let's start with retail. Unlike some other companies in the last few years who have decreased their retail footprint, bricks and mortar footprint, I should say, You guys are actually opening stores.

23:30You opened 10 last year. You're opening 10 this year. What is the way to get consumers into the store? How do you do it? I think, first of all, we open in areas and malls where we already have a high demand. So we look at the data. We cross-reference it. I mean, there are fewer malls now. There are so many malls that don't exist anymore. There are empty malls. I think there's about 450 really great malls in the U.S., and we're only in 305 of them. So when I look at the white space for expansion, where there's real customer demand for PacSun, there's still quite a bit of runway there for us. And we saw last year our store traffic in our malls at PacSun was up 17%.

24:11And so clearly consumers are voting for PacSun. They want us to open stores. And they're looking for experiential retail. So whether that's us showing up trackside at Formula One in Austin or in Miami, where it's unexpected, PacSun has a pop-up store at the track. Or it's what we're doing with Get Ready With Me the night before New Year's Eve and getting our consumers ready. We're bringing them in and meeting them where they are in their lives at that moment. When did the name change from PacSun or from Pacific Sunward to PacSun? About 15 years ago. All right. So that's how old. I mean, I always called it PacSun.

24:45Did you call it the whole thing? Yeah. I mean, that's what it was called. There's a fun TikTok on that, actually. Oh, there is. Yeah, there's a nostalgic throwback. And younger people think it's really fun that we used to be called Pacific Sunwear. So we've brought it back in small pieces through capsules, and it's been great. When you look at appealing to this youth customer, you were talking about in your survey how they do care about the source of things. They do care about arts. They do care about ethics. I feel like that runs into a couple other market trends, including this love of fast fashion.

25:15So how do you have those two competing wins? How do you make sure that you are keeping that genuineness and that ingenuity and that uniqueness and then also providing the number of items and the churn that these customers want? I think, first of all, we have to acknowledge that the consumer is under some price pressures and cost pressures. And I think by acknowledging that, you also acknowledge that they might at some point shop at a brand that might be considered fast fashion. But that at PacSun is not what we stand for. We stand for quality first and foremost, creating real exclusive product that means something to them and will last in their closet and giving it to them at the best value that we can.