SK Chairman Has 'Much, Much Bigger' US Investment Plan

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1:32Bloomberg 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. We have, safe to say, been counting down to this all week. We're talking about the U.S. listing of a giant maker of memory chips. We're talking about SK Hynix. Happened today. It raised$26.5 billion in its American depository receipt offering.

2:18The South Korean chip maker powering through really what's been a volatile market, certainly in its home market, to deliver the largest ever U.S. first-time share sale by a foreign company. I feel like I should bring in Ed Ludlow first before we go to some sound from your incredible interview. Everybody in the newsroom was watching. He is, of course, the host of Bloomberg Tech on Bloomberg Television. Ed, this was a big deal. It was a big deal, not just because of the record that you outlined. Okay, the biggest first time U.S. share sale by a foreign company, the last, by the way, was Alibaba.

2:52So, like, that gives you a sense of the tech company they're in. but like with what's happening right now in the landscape for semiconductors and memory chips you know sk it's an eye-watering number 26.5 billion but sk hynix is so capital committed in korea domestically and around the world we can get to the u.s part of that that actually in the scheme of things 26.5 billion is small it was as much about getting in front of americans you know that was a part of the conversation like they want the american talent the american investor there's a sense that you know the u.s uh knows about ai as good as anyone does and so sk was super conscious of that it's a multi-faceted uh adr listing and you had an interview um at the floor and it was very exciting and it seemed like they have such big plans for the u.s to your point this is really about planting a flag but then we also had a recent headline that says they might expect a chip shortage to last into the next okay so how do you square that so uh literally what happened was I spent about 40 minutes with SK Group chair, Che Taewon.

3:57SK Group is the parent company of SK Hynix, as well as others like SK Telecom. SK Hynix has its own CEO. And Bloomberg News spoke to him just after I came out of the NASDAQ. First time he's done an interview, I believe, particularly in English. And maybe if I was a bit reflective on my interview with his boss, Chairman Che. Chairman Che just didn't get his calendar out and mark the date that he sees this memory shortage easing. But the SK CEO, he definitely did. And so what he said was this goes way beyond 2030. Compare and contrast, I think Micron said 2028 is when you start to see supply catch up with demand.

4:39That's a bit of a ways out to say the least. So in terms of that demand, it's going to be here for a while. Let's get a little bit though for everybody. Let's share some of your interview with the SK Hynix chairman, Chae Tae-won, catching up with that earlier this morning. Check it out, everybody. The SK already invested in more than$35 billion in the U.S. side. My plan is a much bigger number. Much bigger than$35 billion. I have some confidence that the demand will grow and our supply capacity is never going to catch up. It's going to be until that our society, human society, has set up some settlement with AGI.

5:21Then, well, I guess that the world has kind of normalized all the cycles. But anyhow, until then, well, we need a lot of memories. And that, of course, was SK High Next Chairman, Chae Taewon, catching up with Ed Ludlow, an in-depth conversation. I highly recommend everybody kind of check it out on the Bloomberg or at Bloomberg.com to listen to all of it. You know, Ed, I think I've asked you this before. I can't tell whether something like this is a sign of a top or it's also a sign of artificial intelligence. What's happening here is a global thing and the significance of this listing here. Like I'm trying to put it together.

6:01I mean, it was a more than 30 minute conversation, but hat tip to the editor. That was a pretty good super cut because we covered so many things. And like, you know, on the, I think what you're asking about in the first, I think that might've been our producer, Talia, who did that. Well, super good. On the issue of a bubble, and threading together all of that, I think the main point is that he is saying, based on our customers, the buyers of memory chips, we see the world working out as follows for the next several years. Something right in the middle there, so important that that was picked out.

6:35Supply may never catch up with demand. So there will be this imbalance forever, which is kind of difficult to get your head around when you remember that memory markets typically have been cyclical, boom and bust. That largely related to consumer electronics, not data centers. What has to happen for that demand to maybe be in perpetuity, dare I say? What's on the user's end has to happen for that? Well, okay. So the state of the world right now is that lots of data centers are being built. There's still a mix between those data centers that are being used for training AI models and those that are being used to run the models in the phase nose inference.

7:13But at some point, inference becomes a lot more of the market and the memory requirements are different. I don't know if I'll get in trouble or not, but we're talking about this tiny little thing for those watching on television and YouTube. This is a high bandwidth memory chip. It is 12 layers, about the size of my fingernail. This is literally 12 layers of DRAM. DRAM goes in lots of places, not just data centers. So right now, what's exacerbating this market is that there are competing forces. It's not just AI. It's that consumer electronics need DRAM. DRAM pricing, by the way, it's kind of commoditized still.

7:47It still goes way, way, way up. The irony is right now the PC market, the smartphone market are a little bit depressed because of the high price of memory. And the high price of memory is all because the demand from data center is so great. And so like, it's a multifaceted equation. I love that you brought that. I've never seen one in real life. So thank you. Maybe, can I have it? I'm kidding. No. I mean, this is a sample, but this thing, thousands and thousands of dollars. I'm sure. You know, so I'll put it under the mattress for a rainy day. Yeah, exactly. That's a good investment. You sat down with Che Taewon.

8:20He's the chairman of SK Hynix. What was your sense when you were talking to him? We know that they're rivals like Samsung and Micron. Yeah. And they're getting better and better in high bandwidth. Yeah. So, can SK Hynix keep up? Again, this is a high bandwidth memory chip. This is HBM 4E, the 4E generation, but it is 12 layers of DRAM. And specifically in this market, HBM, SK Hynix has 57 % market share. So Samsung is the much bigger beast in memory overall. It includes DRAM, NAND, Flash. So SK's, that was a technology breakthrough for them, a technology decision. I asked him, can you catch up with Samsung?

9:02Yes. The guy paused. and he was like and he looked me in the eye and and said and literally said i am not going to answer that question um and you know to him he's not accountable to samsung he's accountable to i think he said his stakeholders his investors and his customers yeah to be continued i don't even want you to go back home but i know you have a lovely family that you need to and an adorable little boy that you need to go home to as well as a wife so um ed you gave us lots of time great interviews, good coverage, incredible coverage. And like I said, everybody should check out his interview with the SK chairman.

9:36Be well, safe travels home. Ed Ludlow, of course, the host of Bloomberg Tech on Bloomberg Television. You can catch it at 11 a.m. Wall Street time on Bloomberg Television. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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11:14Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. Our next guest is Greg Gat playing into the broader narrative of AI and next steps. We were talking about Lumen Technologies. Just this week, completed its acquisition of Alkira. I hope I'm saying it correctly. It's an on-demand networking platform that helps enterprises connect clouds, partners, and AI workloads. We're excited to talk to the CFO and President, Chris Stansberry, over at Lumen Technologies. He joins us from Denver. He's featured in this week's CFO Briefing Newsletter, which will be out from Bloomberg this weekend.

11:50Also with us here in studio, she puts us all together. Nina Tretman, Bloomberg News Senior Editor. She's editor, too, of the CFO Briefing Newsletter. You can subscribe to it at Bloomberg.com slash CFO dash briefing. Chris, Nina, of course, Nina, great to have you back. Delighted, delighted. Chris is with us. Chris, I want to kick it off with you, if we may, and get this going. You did just close this acquisition of Alkira, and forgive me if I am mispronouncing. Tell us what's the rationale for this transaction. What does it give you? Yeah, and you got the pronunciation right. It's really revolutionary in the networking space.

12:30If you think about historical enterprise networking, it was point to point connectivity. It was very commoditized and frankly, very clunky and hard to consume. And when you think about an AI-driven world, it's not just about connectivity from your company to the cloud. That's what we would call north-south traffic. It's really now rapidly becoming the need to move traffic and workloads between clouds, or what we would refer to as east-west traffic. That's where the problem exists for enterprise today. And what Alcura brings us day one today is really the marriage of that cloud to cloud east-west traffic with the company to cloud north-south traffic that Lumen already had.

13:19So it's really creating a new category at the right time. Thanks, Chris, for joining us. I'm curious, could you talk a little bit about how this could impact your outlook as a business? I know that you spoke to investors earlier this year and provided projections for this year. How does Alkira change the business case for you as Lumen? Yeah, it really changes it tremendously. I mean, for a couple of reasons. When we laid out our financial projections at Investor Day earlier this year, we were planning on building that East-West capability, that cloud-to-cloud capability, which was going to take a couple of years and a couple hundred million dollars to do so.

14:02When we saw what Alcura had to offer, which was that and more, we moved very quickly to acquire them because it brings us that capability today. So what we're doing right now is actually just on a meeting before this is looking at the roadmaps, how quickly sales plays can be developed. and over the course of the balance of this year, we're going to be going hard at how we can accelerate our revenue. Now, a couple of just data points below that. What that means is we're not a telco anymore, right? We are not focusing on the legacy business. We'll have solutions for customers who use voice products, but that is being de-emphasized.

14:48The full energy of Lumen is going into the digitization of networking. The second thing is, is that since closing the deal where we can get teams in rooms, the early read is that what we've acquired is even more special than we thought. And so we're going to do everything we can to bring value to shareholders as fast as possible. Your share price is down about 12 % since the beginning of the year. What does that tell you? What's behind that drop? And how concerned are you also with investor concerns more broadly about AI frothiness? Do you expect to be hit by that? Yeah, so there's I think there's a couple of things.

15:31There's there is we're still valued like a like a telco that's underperforming. I don't think the market has has really looked at the fact or realized the fact that over half of our revenue is in this growth area. And Alkira only supercharges that. So I think, you know, with time and education, that fixes itself. As it relates to the AI volatility, you know, there's a lot of talk about a bubble. And candidly, we're just not seeing it. If you go back in time when the predecessors of Lumen, Level 3, for example, built these big networks, they were building them at the time the Internet was coming about.

16:13And really, that was a solution looking for a problem. This is the exact opposite. The problem is real, where data volumes are exploding. The data is getting further and further away from where companies need to access it. They need to quickly move that data to where workloads can be processed on GPUs. And oh, yeah, throw in energy constraints, which only make that more complicated. Am I sending the data to the right place? What we have in Alkira now is the nervous system, if you will, of AI, and that's needed by whoever the winners are going to be. So who the winners and losers are is less important to us.

16:59We are deeply ingrained in a lot of the AI infrastructure that exists today. And the capabilities that we now bring to market allow enterprise to program in a programmatic way, manage their networks, which has never been able to happen before. This is going to turn networking upside down. So Chris, you mentioned AI. When do your AI investments start translating into earnings growth? Because your valuation has rebounded, but your EBITDA is still expected to decline this year. Yeah, actually, our EBITDA will inflect this year. That's a commitment that we've made to the street. It's not a huge inflection because we are still managing that legacy base, but it will grow from there.

17:47And we expected at the time of our investor day revenue to inflect in 2028. Again, the work that we're doing right now between now and the end of the year to accelerate that will inform, you know, if we can pull that forward or not. But the early indications are we can. So it's starting to show up. The big, big builds that we did with the hyperscalers are 20 year agreements. So that revenue is slow to move in. Those projects are on time, well underway and bring great margin to Lumen. The thing that we're not going to chase is a bunch of new build it and they will come builds because there's just no return in that.

18:29Our focus is really on monetizing the soon-to-be 58 million fiber miles that we have in the ground from 12 just a few years ago, and really unlocking the network in the cloud, bringing things like firewalls and zero threat and load provisioning in the network fabric itself. So the opportunity here is for enterprise to really have the easy button for network consumption and not have to engage in co-location facilities and firewalls and a whole bunch of complex equipment wired together to make networking work. That's where this goes from here. Thank you, Chris. Just wondering, you also, of course, closed an acquisition sale earlier this year to AT &T.

19:23You brought in over$5 billion selling your consumer business to them. You improved your finances quite a bit since then. You restructured debt earlier, but you also at the time asked your dividend. What's your message to investors with regards to the dividend going forward? Yeah, really the message is this is about growth. And every resource that we have is focused on growth right now. And we see lots of opportunity to invest those funds in an ROIC manner that is very accretive to shareholders. So that's our focus. But again, I want to just touch on what you just said. What allowed us to acquire Alkira and really revolutionize enterprise networking is all of that restructuring.

20:10selling non-strategic assets, recapitalizing the company, fixing the maturity curve, going from three credit entities to one. So we have alignment across all of our investor base. It's been an enormous amount of work. And Alkira was really that, as well as the adoption of our network as a service product, are really the first indicators of where we're going. And we're just getting started. So we've moved from defense to offense. And here we go. Chris just got about 45 seconds left here. I want to go back to where we started talking about the closing of Alcura. You also closed the sale of your consumer business to AT &T.

20:47So any other deal making to further build out what you call the nervous system of AI? And again, just got about 45 seconds. Yeah, we've got a lot to work with Alcura already. And again, as I said, we're finding more and more in that. But we will certainly look for things that expand that footprint and keep our lead in place. We'll also look at options around the legacy business and continue to do that. We have been doing it. But as I said, we're de-emphasizing that we're really focused on the new way of networking. Well, a super perspective, certainly on AI. And I too, from what you're talking about, are hearing a very different tone, not so much focus on the data centers, hyperscalers necessarily, but how do you as an organization kind of coordinate all that data that's across different offices of the company, if you will.

21:40Chris, great stuff. Chris Jansbury, he is president and CFO of Lumen Technologies. Chris joining, of course, our own Nina Trentman, Bloomberg News senior editor, editor of the CFO Briefing newsletter. You can subscribe at Bloomberg.com slash CFO Briefing. 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. What are we talking about? This is Kevin Warsh naming names for his five task forces to examine the central bank's approach to key aspects of policymaking with an eye for potentially enacting sweeping changes.

22:19So we're curious what our own Stuart Paul has to say about it. He's Bloomberg Economics, US and Canada economist. He's here in our Bloomberg Interactive Brokers Studio. Hello, hello. So the list drops. There's names all over the place, and it's names for particular. Obviously, it's not like everybody's weighing in on everything, although who knows? I don't know. What do you make of this list as the names dropped? Look, it is a good list, and we can walk through the different task forces. As you mentioned, the different task forces were designed to address different aspects of how the Federal Reserve crafts and communicates its policies.

22:52So among those task forces are a communications Task Force. We know that's a bee in Kevin Warsh's bonnet. He wants to completely revamp how the Federal Reserve guides expectations about the path of policy. There's a balance sheet policy task force. Of course, the Federal Reserve's balance sheet has become bloated over the last several cycles of quantitative easing. There's a new data task force to improve the quality and timeliness of economic signals. We could talk about how macroeconomics is measured. It's very complicated topic, but he landed some heavy hitters for the task force. There's a productivity and jobs task force and an inflation task force.

23:31We could start with any of the task forces that you prefer. Where do you want to start? Well, from your perspective, which one is so interesting to you? Well, so... And how it might impact your world? Look, I live in the world of data. Here at Bloomberg Economics, I feel like I live in the data pipes, right? You do. So I care most about the data task force. And the thing is that he's added a few guys. He's added Doug McMillan, former CEO of Walmart. I'd expect him to come to the table with a lot of alternative data sets from the private sector, trying to guide expectation, trying to inform monetary policymakers about real conditions in the economy above and beyond what we get from federal statistics.

24:14He's also added Kevin Murphy, who's a University of Chicago professor, just a true genius. What's interesting about Kevin Murphy as a University of Chicago professor, he's an expert in what's called price theory, but this is not inflation measurement. Price theory is really just a macroeconomic mode of understanding about the interaction of supply and demand and inferring something that is unseen from that which is seen. We see prices everywhere in the world. What can the movement of prices tell us about things that are really hard to actually see with our naked eye, like the value of Facebook, which I don't pay for, right?

24:55But Facebook does provide some value to me. It is some economic service that is being provided to me. How you measure that and how you infer something about that is informed somewhat by price theory. So what he's creating here with his data task force is a set of folks who aren't so interested in the federal economic statistics that we get from the BLS and BLA and BEA. what they're really focused more on are alternative real-time data sets, granularity across the income distribution, a little bit more granularity about how different parts of the income distribution are experiencing the economy, and about measurement of the unreported.

25:40So it's really about going deep beyond the federal statistics. Now, from my perspective, that's actually going to make it a little bit harder to infer much about the Federal Reserve's reaction function, which is why it's important that he also built a communications team, which will be focused on trying to communicate the Fed's reaction function as the Fed broadens its scope to consider more data. What does it tell you about Warsh's conviction in making it look like the Fed is credible and independent? And you note that your colleague Anna Wong just published a note that I scanned actually just now.

26:16And it also said that not all of them share Warsh's view. Not all of them share his view. For example, there are folks like Karen Dynan, who served in the Obama administration. There are folks like Jeremy Stein, who's on the balance sheet policy task force. Actually, both of them are on the balance sheet policy task force. He was an Obama appointee to the Board of Governors of the Federal Reserve. He actually joined at the same time as Jay Powell. They joined as governors together. and so there are some folks that are not from the same I guess you could say academic milieu as Kevin Warsh but where do I think it ends up shaking out in terms of policy going forward well Jeremy Stein is an interesting character especially to be on the balance sheet policy committee while we know that Kevin Warsh wants a smaller balance sheet and we know that that Jeremy Stein the former Obama appointee who's now on the balance sheet task force, would actually prefer to have a little bit more of a buffer on the Fed's balance sheet to allow for some financial stability.