GE to Buy Consolidated Precision Products for $11.75 Billion

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1:51Scarlet Fu:Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. I had an M &A trade here today that I think got the attention of a lot of folks. General Electric, GE, to buy consolidated precision products for$11.75 billion. I have no idea what consolidated precision products does for a living, but our next guest does. George Ferguson joins us. He covers all the airlines, all the aerospace companies.

2:34George, first of all, I was talking earlier this morning to John Tucker. I can't remember the last time GE made a major acquisition. I've spent the last 20 years, you know, hearing about all the stuff they're divesting. Good point. Here's buying it. George, talk to us about this deal. What's GE doing here? Yeah, they have, like you said, largely been divesting and turning themselves into a pure play arrow. This looks to me like GE is going out and buying into their supply chain. My guess is they're looking for obstacles to building more engines and more engine parts because everybody's having a problem right now getting the throughput they want.

3:10Look, I think it probably sets GE up for the potential maybe even to take more share on this generation of jet engines. So one of the big challenges right now for the air framers, Boeing and Airbus, especially Airbus, is getting enough engines to build aircraft and deliver to customers. Both of them have backlogs that are about a decade long, definitely drive well into the 2030s because it's not a sequential backlog. But Airbus keeps asking RTX to give them more engines so they can make more new aircraft. RTX keeps banging that off right now because they're in the midst of trying to fix their problems with their geared turbofan engine.

3:56This could give GE the opportunity to build more LEAPS, which is their next generation engine, deliver into Airbus potentially, which wants to go to$75 a month for the A320 and take even more share in the current cycle of the aircraft business.

4:13Scarlet Fu:OK, I also have to get used to the fact that GE is actually GE Aerospace, which, you know, kind of requires me to, you know, rewire my brain a little bit. But GE Aerospace to fund this deal with seven billion dollars in cash, the remainder in new debt. You mentioned that it's solidifying its supply chain. Does that mean that regulators might jump in and look at this with some skepticism? look i yeah i i don't i think regulators will absolutely look at it um i can't tell you what the supply chain for precision casters look like but what we hear from ge because it is a private company what we hear from ge is they are supplier to the industry so i'm almost certain you're going to see some uh you know some judicial oversight whether or not there's too much concentration I had the DES function on the Bloomberg terminal for consolidated precision products.

5:09They manufacture precision metal castings for the aerospace defense and power generation industries. That sounds like right up George's alley, like manufacturing aerospace. And they're located in the city of Industry, California. I don't know where that is, but Southern California, I believe. Southern California. OK. So, George, while we've got you on the horn here, Boeing, I got to ask, I mean, where are we on deliveries of 737s? That's all I know about the Boeing story. I'm sticking with that strategy. Tell me what the delivery situation looks like for the 737. Well, so I have to tell you, it's been a busy morning here in aerospace, right?

5:45Airbus reported their deliveries yesterday. So they tried to sneak them in on Labor Day. And they were a bit weak. And Boeing just announced something as we were going on the air. So honestly, I have not seen it. I will tell you that Boeing has been doing better than Airbus. We looked at Airbus August numbers. Airbus is going to have to build 75 A320s per month till the end of the year to get to their guidance for A320s. They've never done that that before sequentially. Again, Boeing's been having a better time at it, but Boeing's coming from the easier end of the curve, I'd say, because they're not sort of approaching those approaching the levels they were delivering prior to the pandemics.

6:29But we'll be on Boeing here in a minute. It's been kind of a busy airspace. Exactly. Well, I'll give you the Bloomberg News reporting. Boeing delivered 51 commercial aircraft in August, its lowest number in four months, as output of the wide-body 787 Dreamliner dropped. Importantly for me, because I listen to you and I read your research, the 737-type aircraft, they delivered 42. So there you go. So everybody's reporting their deliveries. Which isn't bad. 47 is what their target is, and it's August, right? Yeah. So we know August is light, but the question is, what's the setup for the end of the year?

7:02We'll be looking at that shortly.

7:04Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects.

7:46Scarlet Fu:Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans. Let's talk about healthcare for a second. It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling. The system should just work better for everyone. That's exactly what the people at Optum are trying to do every day. They're a healthcare company linking patient care and pharmacy services and using data and technology to drive the whole system so care is connected, not complicated, for patients and providers.

8:20Scarlet Fu:Things like making it easier to get care that looks at the whole person, from primary care doctors to mental health support and even in-home care, and then using technology to make sure they all work together. Technology designed to help doctors spend less time on busy work and more time with their patients. And those prescriptions? Optum is working to bring costs down, save patients money, and make it easier to get refills. Little by little, Optum is helping make healthcare work as one for everyone. Head to business.optum.com to see how. This is Alexis Christopoulos for Bloomberg Surveillance.

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9:34And the more they work with your team, the smarter they get. With Asana, your whole company can work on the same plan towards the same goal, whether you're a team of 10 or 10 ,000. Asana, where humans and agents workflow together. Try it at asana.com. That's A-S-A-N-A dot com.

9:53Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's turn back to the tech sector because we can't stray too far away from it. There have been a couple of deals an actual deal and then a non-deal this morning in the tech sector. You have Qualcomm making a deal with Amazon, but then you also have Anthropic walking away from a purchase. So we had to bring in Mandeep Singh. He is our global head of tech research here at Bloomberg Intelligence.

10:30Scarlet Fu:Mandeep, let's start with Anthropic. Our reporting shows that it has decided to walk away from a$6 billion purchase of Descartes AI, which is an AI startup. What does that say about what Anthropic wants to do or can do before it goes public? Well, right now, you know, we've seen these companies are super active when it comes to just partnerships and any deals. NVIDIA, Hugging Face was a big deal last week. And to my mind, I mean, Anthropic really has a lot going right for them. And it is about plugging whatever gaps they have. So in this case, this company does chip optimization. And we know Anthropic has the most premium tokens in the market.

11:14So when it comes to the token pricing, they are able to charge a premium. And if they're able to optimize, you know, the infrastructure that they run on, that makes sense. But obviously they didn't agree on something. We don't know what it was. I don't think it would be the price given Anthropic really has the deep pockets now to make any acquisition. So it was something I think more strategic in terms of aligning. And this company it did get an offer from NVIDIA, Descartes, and they turned down the offer. But to my mind, Anthropic has done everything organically. And look, they have the best coding agent, so they could code anything if they wanted to.

11:54Are we expecting them to come public and when? It could be as soon as this week. Again, I don't know the exact details on when they will file the s1 but there are rumors it could be as soon as uh this week or next all right so here's a qualcomm deal um they're the largest maker of smartphone processes qualcomm is they signed up amazon.com as a data center chip customer that's good news i think for qualcomm but what's even better they gave amazon the right to acquire as much as four billion dollars in shares what's going on there this is another one of your circular deals mandeep that i'm worried about I mean, look, at this point of time, all the chip companies, especially the ones that are not NVIDIA, so AMD ended up doing a similar warrant structure with OpenAI and Meta.

12:43And I'm not surprised Qualcomm being the new player on the block when it comes to the data center market, which is, you know, in trillions of dollars. And everyone knows that. So Qualcomm, being a more consumer device centric chip player, wants to expand in data center. And what better way to do it than, you know, partner with Amazon? And they had to give Amazon some incentive. So in this case, it was the warrant. I mean, the existing shareholders may complain and say, you know, why are they diluting the existing shareholders? But to my mind, strategically, it makes a ton of sense. And it gives Qualcomm some skin in the game when it comes to this large data center market.

13:21Scarlet Fu:And investors seem to agree because there's no fear of dilution showing up in the share price today. Qualcomm is up about 5 % in trading. Amazon obviously not putting all its chips with Qualcomm, right? I mean, it's spreading out. It's not risk, but it's definitely relying on a number of different suppliers. Yeah, and they make their own chips. So right now, the real limiting factor is the fab capacity. So what kind of TSMC allocation can you get? So Amazon has its own allocation. Nvidia has prepaid for 70 % plus of TSMC's capacity for the foreseeable future. So how do you make more chips? You've got to partner with whoever is remaining.

14:02So it's your Qualcomm's, your AMD's, and you know, whoever is remaining there.

14:06Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects.

14:47Scarlet Fu:Get started at ChachiPT.com by selecting Work Mode, available on Plus and Pro plans. Let's talk about healthcare for a second. It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling. The system should just work better for everyone. That's exactly what the people at Optum are trying to do every day. They're a healthcare company linking patient care and pharmacy services and using data and technology to drive the whole system so care is connected, not complicated, for patients and providers.

15:21Scarlet Fu:Things like making it easier to get care that looks at the whole person, from primary care doctors to mental health support and even in-home care, and then using technology to make sure they all work together. Technology designed to help doctors spend less time on busy work and more time with their patients. And those prescriptions? Optum is working to bring costs down, save patients money, and make it easier to get refills. Little by little, Optum is helping make healthcare work as one for everyone. Head to business.optum.com to see how. This is Alexis Christopoulos for Bloomberg Surveillance.

15:56AI is everywhere. Outcomes are not. Not because AI doesn't work, but because AI hasn't reached the workflows yet. The campaigns, the launches, the quarterly planning. Those workflows are still run by humans alone. AI is making individuals faster, but it's not making businesses more productive. That's the gap Asana is built to close. Asana is the operating system for human agent teams, your easy button for AI productivity across every team. Ready-to-go AI teammates pre-built for marketing, ops, and IT. No prompt engineering, no setup. They show up where the work is happening, already onboarded in your workflows, ready to deliver.

16:35And the more they work with your team, the smarter they get. With Asana, your whole company can work on the same plan towards the same goal, whether you're a team of 10 or 10 ,000. Asana, where humans and agents workflow together. Try it at asana.com. That's A-S-A-N-A dot com.

16:54Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Our tech team, research team, and Bloomberg Intelligence, which Mandeep's seeing in Anurag Rana. It keeps growing. Yeah, thankfully. We've got some new voices. I'm sick and tired of talking to those guys. I mean, they're pretty good and all, but I want some new voices. Fresh perspective. Yeah. Derek Mogul joins us here. He's a technology analyst for Bloomberg Intelligence.

17:26I recently joined the team. Appreciate it. Talk to us about AI storage. Are your companies, are they riding this AI wave? And if so, how are they doing that? Oh, well, they are. So with AI, inference is actually driving storage from a passive capacity to more active extension of memory. So it's creating an enormous amount of active data, but this data has to be accessed repeatedly and concurrently. So basically what's going on is that's overwhelming DRAM and HBM. What's HBM? High bandwidth memory. High bandwidth memory. Okay. Yeah, so it's overwhelming these memory sources, and it's actually flowing into other layers of storage.

18:04So this is creating a huge demand, and it's creating what we call a memory and storage hierarchy. So you have HBM and DRAM at the top of the pyramid, and then as data flows down, it flows down into Flash, and then it flows down to HDD. So it's reinvigorating the storage industry for sure.

18:20Scarlet Fu:Yeah, it seems like any company that's modestly involved in memory chips has just, you know, the stock has gone haywire over the last couple of months. You do a lot of work on this. Your modeling points to almost five times growth in storage spending by 2030. And all of that is just part of the whole build out of AI infrastructure? Yeah, that's exactly right. So it really comes down to more data being created by AI and the data costing more to store. So we do model about 25 % CAGR in the underlying bit demand growth through 2030. And this is really based on the supplier guidance. And I mean, we've all heard about these LTAs.

18:57LTAs are now spanning out to the 2030s. Long-term agreements. Long-term agreements, sorry. Yep. And then compounding that is ASPs. So storage has historically been a deflationary industry. Yeah. But we're seeing price increases for the first time in decades. So if you add two and two together, yeah, that's 5x increase in the storage 10. All right. Let's be honest. You were born on third base. You thought you hit a triple. Look at some of these names on your list. Seagate Technologies, Western Digital, Micron. These things are up like 100%, 200 % this year. It's like flashback to the 90s. Yeah.

19:27I mean, so what's going on with these names? Are people just trying to, are they just sensing that there's going to be demand for these products? Yeah. Like really for like next several years? I mean, these guys are guiding as such. I mean, they're guiding sustained bit demand into the 2030s. And they're talking about LTAs going up. I mean, Western Digital, I believe, talked about LTAs out to 2032. So as an analyst, as an investor, you have some visibility on revenue, right? Yeah, I mean, it's up massively, especially on the flash side. I mean, ASPs in flash are up three to 4x this year alone.

20:00That compounds upon 20-25 % bid growth. I mean, those are enormous numbers.

20:06Scarlet Fu:So for a company like Western Digital, trading at 36 times earnings. I mean, this, like you said, once upon a time was a very cyclical company and the products it made were, you know, they just kind of went down in price overall. Is that expensive for Western Digital, 36 times earnings? It is expensive, but again, the company is now guiding to 25 % demand bid growth through 2030. Ten points of that, I estimate, is from AI alone. So they do get some upside from the AI. Just a quick question. Seagate. Seagate trading at 59 times reported earnings. But you look to the forward earnings, that multiple is cut in half 25 times.

20:46So again, like we saw with NVIDIA, these companies are earning their way into their multiples. So it's just amazing. Is your business, like one of the first things I learned about your business, which is the hardware side of tech, is it's cyclical. And you've got to get the cycle right. Is it still cyclical these days? I mean, that's a great question. So the way I see it is the storage industry has bifurcated into the legacy cyclical industry. So it's cell phone storage, PC storage. That still rides the normal cycle. It's like high highs and low lows. But I would say on the AI side, it seems like it's more sustained.

21:19It's less cyclical. Of course, it could crash at some point, but for the time being, I mean, we're seeing long-term demand and sustained demand.

21:26Scarlet Fu:Okay, what could cause it to crash? Well, I mean, number one, I mean, this can cause the whole market to crash. It's if hyperscalers stop spending. I mean, that's the bottom line. And we haven't seen or heard any of that, have we? No, there's no inkling of that at the current moment. I mean, if you think about it, are we going to use less and less AI? Are you going to use ChatGPT less? No, I mean, you're going to continue to use it, and I think it'll continue to proliferate. enterprises are using it more and more, Claude. So, I mean, over time, I think you can make a strong case that demand will hold up.