Intel Returns to Profitability in Third Quarter

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0:41That's Vanguard.com slash audio. All investing is subject to risk, Vanguard Marketing Corporation Distributor. Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London. We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now.

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1:50Bloomberg 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. Getting back to earnings. Intel, our good friends out there in Southern California and out in the valley, they reported some pretty darn good numbers and the stocks rallying. I was just looking at Intel as a stock. And I guess when the government invests in you and NVIDIA invests in you, that's a pretty good sign of support.

2:29And the stock is up about seven-tenths of 1 % today, but it's up 92 % year-to-date. Kunjan Sobani, he follows Intel. He's a senior analyst. He covers the semis for Bloomberg Intelligence. He's based out there in our San Francisco office. Have you been to our San Francisco office? I have. Beautiful. It is awesome. Pure 6, I think, or Pure 3. I can't remember which one it is, but it's awesome out there right out into the bay. It's very cool. Kunjan, talk to us about Intel here. What's happening with their business? Yeah, I mean, look, the results yesterday sort of seemed a start of a turnaround for us.

3:00Fundamentally, the stock rally you mentioned over the last few months has not been driven by any fundamental improvements. It was all purely driven by the deals that the three deals, the U.S. government, NVIDIA and the SoftBank deal, which all together brought in somewhere between 16 to 18 billion dollars to them. That brings in long-term secular tailwinds, or not secular, but strategic tailwinds, but doesn't do anything to improve the near-term fundamental businesses and address the challenges. However, the results yesterday showed a step in the right direction where improving the demand for their AI PC and the server CPU products improved, which we have been wanting to see for a while.

3:41There were some structural changes that they're doing, which will help with gross profit improvement, gross profit dollar improvement going forward, even though the gross margin will still have headwinds next year. But we like the structural changes they're doing, bringing more wafers into Intel, you know, ramping up the Arizona foundry with their newest Intel 18A node, which just has better cost structure than any other sites that they have. So they're doing many steps in the right direction, improving OPEX discipline as well. So all of that seems to be a start of a good turnaround. And, you know, there's still a long way to go.

4:17Education still needs to be done for many quarters, but this is good news. I'm so glad you brought up the investments from the U.S. government, NVIDIA and SoftBank as something that helps certainly shore up the balance sheet. But how does it translate into operational gains? I mean, do customers decide to buy Intel's chips in meaningful volumes as a result? I mean, not directly, not implicitly. The deals don't come with that. But, you know, there is some indirect influence, right? Or you might want to call it a validity that now, you know, the risk of liquidity risk within Intel, which was there until a few quarters ago, the risk of sort of failing the foundry business, failing or not investing goes away.

4:59So customers, big customers would gain some trust, right? That when you have backing of such key players in the industry, they must believe in you. So, Kunjan, talk about the competitive environment here. So Intel's made some nice inroads here, but there's a lot of competition out there in their chip fab business. Talk to us about the competitive landscape. Yeah, I mean, the competition for them, both on the foundry side and the product side, is intense. Frankly speaking, they have really missed out on the AI accelerator and the really AI in the data center ramp, which all of their peers like NVIDIA, AMD are enjoying.

5:37So they're playing catch up when it comes to most areas. The second issue in competition has been that they've been losing share significantly in the data center side. Again, this is the most profitable, highest spend side. This is where you really don't want to lose share. But slowly, we have seen the share loss pace reduce, almost coming, sort of staying share loss steady quarter over quarter. So now they need to work on improving, which the changes that they're doing going forward, which is moving the capacity to serve the data center customers at the expense of low-end PC customers, we think is the right step to, you know, not, you don't want to lose share in that market anymore.

6:19Right. So how different is Liputan, the CEO's strategy versus Pat Gelsinger, his predecessor, who was let go? Is there a meaningful difference? As a huge difference, I think from a personality communication strategy perspective, it's the two opposite ends. LibBoo seems to be more practical, under-promising and over-delivering, which usually the street likes. Pat, on the other hand, was visionary but was trying to get to the stars before focusing on the moon. So, very different styles. LibBoo has done a lot of cultural changes, significant restructure in middle management, getting everyone back to the office which he really believes will bring significant culture and working changes.

7:08So a lot of different opinions, different styles. It's too soon to say which style is going to win, but at least we are seeing some good proof points of the new culture shift. Stay with us. More from Bloomberg Intelligence coming up after this. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients.

7:47We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, Go see the record for yourself at Vanguard.com slash audio. That's Vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. This is Tom Keen inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Sweeney.

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8:59That's the Bloomberg Surveillance Podcast with Tom Keen, Paul Sweeney, and me, Alexis Christophorus. Subscribe today wherever you get your podcasts. Bloomberg Surveillance, essential listening each and every business day. 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 talk about the auto business here. Ford, holy cow, they had some good numbers. And I think the automakers are kind of saying we're focusing on the units, the models that make us a lot of money.

9:41And they're not EVs. No, they're not. They're kind of dialing back that rhetoric a little bit in response to, I guess, what they're seeing in the market. Craig Trudell, he's a Bloomberg Global Autos editor. Craig, talk to us about Ford. They had some some some good numbers, but I'm also seeing some layoff discussion out there. Talk to us about Detroit. What's happening? Yeah, it's been quite a week. It's hard to parse because you're seeing GM and Ford have these, you know, strong earnings reports, huge moves in the stock. President Trump is is taking victory laps over this on true social. And yet this morning, our colleague David Welch in Detroit had the scoop that GM is laying off hundreds of workers.

10:22So you have this this situation where, as you say, the amount of sales these companies are pulling off with full size SUVs. You know, the Ford Expeditions, the Chevy Tahoe's, those sorts of vehicles are really hot. And in some cases, you know, as as as good as these companies have seen and something on the order of two decades. And and yet also with that, you know, real cost issues in terms of tariffs, I think maybe not the worst case scenario that they were concerned about months ago. But absolutely, those were still still had wins. I think there is a concerted effort on the part of these two companies, however, to sort of, you know, really thank Trump for the these sort of incremental bits of relief that he's taken off from of the measures that were put in place earlier this year.

11:14Is that part of it done? Is that part of the story over? Are they still working to kind of continue to whittle away at some of the costs imposed by the president's policies? I think it's still very much a live issue. And interestingly, some of the attempts to curry favor with the White House seems to be around actually applauding his move to put new tariffs in place on medium and heavy trucks. And the reason that they are appreciating that is because their rival, Stellantis, makes big Ram pickups down in Mexico. So it's a case of actually two players in Detroit kind of ganging up on the third and sort of praising Trump.

11:59And I think that was one of the interesting storylines out of last night's earnings that Ford sees, you know, sort of some incremental opportunity to take advantage of the fact that one of their big competitors now faces much more of a tariff bill on those larger pickups that are made down in Mexico. So Craig, reading between the lines from the GM release and then the Ford results, it feels like these companies are stepping back on the margin from EVs and EV investments. And that seems to be one of the things that the street is applauding here. How do you read it? Yeah, I think it's a little different across these two companies where you have GM is much further along, I would say, in standing up battery capacity, standing up EV capacity as well.

12:46So they, I would say, on the other hand, have, you know, kind of on one hand, have more more EV potential and more battery potential to work with and haven't quite sort of cut to the bone in terms of, you know, what they have to offer. And yet I would say it's also been the case that it's fair to look at sort of what they've managed in terms of how many EVs they're selling. And fair to say that it's been a real disappointment. We've not seen the ramp up in demand that was hoped for, even in the times when we were able to take advantage of$7 ,500 federal tax credits. As we know, those days are now gone.

13:29And so you're seeing GM cut back. I think Ford's cutting back sort of predated some of these policy changes. And it's more to do with the fact that they've they've just been losing so much money on that side of the business and have a little bit less to work with in terms of progress in scaling up the business and bringing down costs. Thanks to that scale. Craig, did we learn anything from GM or Ford's financing divisions about consumers and how much they're able to how much debt they're able to take on? And I ask because, of course, we had the subprime lender PrimaLend enter bankruptcy this week.

14:05That followed Tricolor entering bankruptcy a few weeks ago. So there are a lot of questions about credit quality, particularly for low-income consumers. This absolutely came up with Ford in particular because Ford Motor Credit is a pretty big part of that company's business. They did emphasize just sort of how small a sort of amount of exposure they have from a subprime perspective. I think that's not necessarily a shock where you do have a situation where there's a lot of subprime lenders willing to sort of, you know, go after that business. And the captive lenders at Ford and GM tend not to play in that necessarily.

14:50I think there was a lot of concern years ago when GM, around the time that they were coming back from bankruptcy, acquired a subprime lender and everybody said, hey, wait a minute here. Isn't this kind of what put GM in the ditch back in 2008, 2009? But really, they've also turned GM Financial into a captive lender that does a lot of higher credit scores and not necessarily targeting that subprime segment that everybody rightfully is concerned about, given the events of the last couple of months. Stay with us. More from Bloomberg Intelligence coming up after this. Hello, I'm Michelle Hussain, and for more than 20 years, I was at the BBC.

15:39But all the time I was delivering the headlines, I wanted to go further than the news of the day, to spend more time with the people shaping our world. And that's what I'm doing here on this podcast. Speaking to people from Nigel Farage, to tech journalist Kara Swisher, And the tech industry is running wild. You know, they've gotten what they wanted and they've seen a huge run up in their stock prices. This will be a place where every weekend you can count on one essential conversation to help make sense of the world. So please join me, listen and subscribe to The Michelle Hussain Show from Bloomberg Weekend, wherever you get your podcasts.

16:25You certainly ask interesting questions.

16:31You'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. Back in the U.S. in the stock market, company news, Target cutting some people here. It's cutting some headcount in the corporate levels, in the salaried levels in corporate HQ. Let's see what's happening with Target and with the broader retail space in general. We can go to Jen Bartasch, Senior Retail Staples and Packaged Food Analyst for Bloomberg Intelligence.

17:08So, Jen, so it looks like Target is announcing some corporate job cuts. What do you make of it here? Yeah. Hi, Paul. So when we look at Target, these are corporate jobs, as you said. It's about 1 ,800 in total from 1 ,000 existing and 800 postings that haven't been filled. And really, this is to us signals that they're finally really looking at how to streamline the organization, tighten things up and hopefully initiate change a little bit faster than they have to kind of get things back on track. So is this is this an issue for the company, i.e., maybe they are a little bloated, maybe their profit margins aren't up to snuff?

17:44Is that something that's been identified? You know, I think that the bloat is something that is has been identified by the company. And they're not alone. If you think about as we came out of the pandemic, you know, a lot of companies introduced a lot more redundancy in their processes, in their things like that, just in order to make sure that they would have enough supply of goods for everybody. And as the overall supply chain is stabilized, now it's time to go back and trim that fat that they put on just after the pandemic. And, you know, again, Target's not alone. Walmart, you know, earlier this year has also announced corporate head cuts.

18:20And so I think this is a normal course of business, but it's a good time for Target to do so. So let's assuming that's a it's a due course of business here. Let's step back and take a look at their core fundamentals of the business, whether it's Target or Walmart here. As we go into this holiday shopping season, what's the what are the key drivers or the key levers that you're looking at to gauge success or maybe some challenges? I think one of the things that needs to be kind of reiterated about Target's decision is that it doesn't impact the client facing part of the business. And so that won't affect their seasonal hires.

18:57It won't affect their number of employees in stores. And when you're looking at broader retail coming into that holiday season, success is really going to hinge on making sure they have enough of the inventory and stock, that they've made good calls on what the items are that they're carrying, but also that customer support and experience. And so, you know, those those are the things that we're going to be looking for as we get closer to the holiday season. And we had Mattel and we had Hasbro report earlier this week and they didn't have great results. And, you know, part of that is reading into toy demand for the holidays and the orders that weren't actually that didn't actually materialize.

19:34So we'll be watching that very carefully when it comes to these retailers that really specialize in those kind of products for consumers around the holidays. So what is Walmart? What is Target? What are they saying about the upcoming holiday season, which is such an important part for the overall retail chain? Yeah, it is the most important part of the year for these companies. And both of these companies, as well as others like Costco, they all say that they're well positioned for the holidays. If you think about the procurement process, most of the orders for holiday goods were placed back in January or February.

20:11A lot of the goods started to arrive in July and August. So they should have their goods here in the U.S. kind of ready to go. And so I think with the state of the consumer spending patterns in the U.S., although people are still spending money, they're still looking for value. So when we're looking forward to the holiday season, we think we're going to see much more spread out deals and people spending on a spread out basis so that they don't get hit hard by big credit card bills in January. So watch for lots of small deals that kind of lead up into the holidays. And will prices that we pay at the retail, at the target level, at the Walmart level, are they going to be influenced by tariffs, do we think?

20:52I think there will be certain categories that will be influenced by tariffs. And so, you know, all the retailers are saying they're using price increases as the last possible resort. And I think actually one of the interesting things is that when they talk about pushing back on suppliers or sharing the cost of suppliers. Some of the commentary that we heard this week from Mattel and Hasbro sort of illustrate that there were lower orders, there's less expectation for quick refills. So it'll be interesting to see how effective those companies are at negotiating other ways to manage tariffs before they put price increases in.

21:34But in some areas, it's going to be impossible not to pass something through.

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