Microsoft’s Xbox to Cut 3200 Jobs, Divest Studios in Overhaul

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2:29Brody Ford, Bloomberg technology reporter, joins us here. Brody, what's going on at Microsoft here today? Pretty much across the industry of technology, you see companies trying to rethink where they're spending money. A lot of this is fueled because they're spending so much on AI and building out data centers and infrastructures that they're taking a closer look across all divisions. So today, Xbox is the one that we see really kind of getting that hammer. They laid out a plan to cut about 20 % of staff over the next year. And broader at Microsoft, it's a plan to cut about 6 ,400 people. again, just kind of trimming both an Xbox and sales, trying to reorient for what they say will help them grow in this next era.

3:17Scarlet Fu:Brody, what is the rationale for Microsoft keeping Xbox? The CEO of the Xbox division wrote in a note to staff this morning, and this is based on your reporting, that Xbox is operating at margins three to 10 times lower than comparable businesses. I mean, financially, it's not keeping up. So why does Microsoft want to keep it? It's a good question. Microsoft really has traditionally struggled with consumer businesses. You know, every time they've kind of tried to spin up, say, like a smartphone or things of this nature over history, it hasn't always gone super well. Xbox, they've been traditionally committed to because it was this unique blend of hardware and software, and they found a niche in it.

3:57And, yeah, today is them trying to reorient that business into something that they can keep and grow for the long term. So you see them spinning off a lot of studios, talking about how owning content makers maybe isn't a business they want to be in. But owning the platform is something they're still interested in doing. How much is Xbox? Do we know of their total revenue? Like, how material is it for the financials of this company? It's a decent chunk of revenue, right? I mean, the issue is the profit. A lot of people buy video games. A lot of people buy consoles. But, you know, Microsoft has really struggled to make it super profitable.

4:37I think a lot of people forget about the Activision acquisition a couple of years ago. I mean, I think I was like$69 billion. It was one of the biggest tech acquisitions of all time. And yet a couple of years later, we find that the margins haven't kept up. The growth isn't quite what they hoped it would be. Of course, we have the component crunch, right? A lot of things like chips and memory have increased in price, which kind of accelerate all of these issues. So it is a material business for Microsoft. It's something they're ready to throw away, but it's something that they feel they need to really kind of take a closer look at.

5:12Scarlet Fu:I know you don't cover Sony per se, but how do Xbox's fortunes compare with, say, the Sony PlayStation? A lot of console makers are struggling right now because of that memory crunch, because AI has essentially messed with the supply chains for a lot of different components that go into computers and infrastructures. And so if you're a console maker that's already running at pretty slim margins, then all of a sudden your memory chips double in price. That's going to make everything tough. and more broadly content makers are needing to compete against you know a wider variety of content that's able to be created with ai i mean as it relates to triple a games they're not you know being created with ai but there's just so many more places for eyeballs to be focused on these days that if you're selling content it's a more competitive market microsoft stocks down 20 year to date it's it's rare that you see that kind of performance out of microsoft or What's the feeling within the offices that they're Redmond, Washington?

6:15I mean, do they talk about their stock? Do they ignore their stock? How do they kind of just talk about it, think about it? When you ask an executive, they say, oh, I don't care about the stock price. I focus on executing. You ask an employee and they say, what the heck is going on with our stock price? And that's consistent across all companies. The big thing for Microsoft, and you can see other hyperscales, you can see with Oracle very well, is that on one hand, Wall Street is worried about all this spending. Is it going to pay off all the data centers? And on the other end, there are traditional software businesses that have really created the cash cow that is Microsoft.

6:54Does that last in the age of AI? So they kind of have these two concurrent fears, which are leading to, yeah, some weakness for a stock that has been just a pretty consistent, safe harbor and so much choppiness over the market of recent years.

7:07Scarlet Fu:Brody, I know you cover Microsoft, that company is going to be reporting its quarterly results at the end of this month. Will this Xbox closure, do you think, result in some surprising financials on earnings day? What I would expect to hear them talk about is ongoing focus on margins, which, you know, is corporate speak for we're planning to fire 20 percent of people at Xbox. You know, I think we'll hear them talk about how, look, we're spending a ton of money on our data centers on our chips, our CapEx is in the past hundreds of billions of dollars a year. But we're doing what we can to trim costs everywhere.

7:45And we're going to make sure that we're really getting an ROI out of every dollar. I think that will be the high level message. And if you poke underneath it, you see phenomenon like the cost cuts today.

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10:11Believe it or not, kind of flying under the radar screen here. We're kind of getting a quasi IPO coming soon. SK Hynix, the Korean company, they make all the memory chip stocks up like a gajillion percent. they're going to list 17.79 million shares ADRs in the U.S. And I think that's, if my math is correct, that's like a$28 billion offering. I mean, we're kind of getting numb to these huge numbers with Goldman. I mean, Google doing their secondary earlier this year and all the big IPOs we've seen with SpaceX. But let's put it in context here. We can do that with Bailey Lipschultz, senior equities reporter for Bloomberg News.

10:46Bailey, talk to us about what SK Hynix is doing here. Yeah. So this is a company, to your point, nominally at 28 billion would be the third largest IPO ever on any exchange. So behind SpaceX, behind Saudi Aramco, which is pretty mind boggling to be completely honest. The thing to keep in mind is so this is an ADR, ADR IPO. So basically they're selling shares for the first time here in the U.S. They will maintain a home listing on the other side of the world in South Korea. Each ADR represents one tenth of one common share. Why does that all matter? a as you mentioned a 28 billion dollar offering is very large b this is a company worth more than a trillion dollars and c this opens up everyone on wall street everyone in the u.s to now actually trade sk hynix on new york hours on u.s hours and be able to cater to not only retail investors but institutional investors we already saw bailey gifford co2 and situational awareness partners indicating they want to buy as much as$7 billion of this deal.

11:46So big numbers, but it's also a right time for the company. Timing. I've heard people talk about maybe this feels a little top of the market kind of thing. Are you hearing that out in the marketplace? Yeah. When we talk to people, the main question is, can we structurally say this time is different? And why does that matter for semiconductors? Semiconductors are the most cyclical business on Wall Street. So this is an industry that booms and busts as kind of the PC and smartphone eras evolve and as sales kind of mature from there. The big question is, will we continue to see demand for building out data centers?

12:23Will we continue to see that here on Earth and potentially as SpaceX wants to do in space? And the big question from there goes, these are companies that want to spend hundreds of billion dollars to build out manufacturing capacity. Right now, there's a bottleneck to get compute and get access to these chips. Well, what happens if it's not that easy? And that's the big risk. So just from a U.S. listing perspective, is this going to go in various indices? Is SK Hynix in the various indexes around the world? It's in some. When you just kind of look using the WGT function, which will pull up which indexes the company is in.

13:03Obviously, again, it's one of the bigger companies in the world. So it's obviously a big driver behind the KOSPI, the Korean exchange. It's also in a number of those emerging market ETF, emerging market indexes. The big thing to keep an eye on and the big thing that does matter is it's not eligible for fast track NASDAQ 100 inclusion. But in the long run, it will likely be included in the NASDAQ 100 and everything that that brings. Obviously, we talked about that with SpaceX. That is a fundamental shift for a company, again, that has been very difficult to trade for U.S. investors. And then the question from there goes, OK, do we get to see double and triple or triple levered ETFs and kind of what happens with that entire explosion from there?

13:44So will this open up new buyers, I guess, potential new owners for this stock? Yeah, when we've spoke with a number of institutional investors, whether they couldn't trade companies that are listed in an emerging market, whether they just don't want the headache of worrying about foreign exchange and hedging some of those risks, those have been top of mind. We do know a few investors that we spoke to for our story that went out Sunday morning. There also are investors who just aren't comfortable with an ADR. They want to own companies that are domiciled here. They want to own companies that their primary listing is in the U.S.

14:18as opposed to this. It'll be interesting to see what kind of premium it trades at. This is kind of ripping off the playbook that we saw with Taiwan Semi. But again, that was a company that raised a few hundred million, not closer to 30 billion. What's the timing of this deal? It'll price and it'll trade on Friday. We expect pricing to happen sometime Thursday morning here so that it would open up, kind of making sure that people are able to trade accordingly in South Korea there Friday morning. It's a truncated process. It's a quicker process. But even talking to the bankers on the deal, if you want to invest in SK Hynix, you probably know who the company is and you're not selling a new entire pitch.

14:54The one thing that we've been pointing out is their main roadshow at 1.30 p.m. New York time will be the only real interaction with management on a webcast for potential it's two. So they're just on a webcast. Kind of a webcast. Very quick process. Again, it's tied to it. Yeah. I'm overcomplicated. Just another great day to be an IPO banker, right? Yeah, they're making, I think it was 50 biffs on this deal. So we had a few bankers who said, you know, this isn't easy. But when you compare to being at the beck and call of Elon Musk, night and day between the SpaceX IPO. Exactly. And how about Anthropics?

15:30That's still thinking maybe fall, late fall, something like that? We've heard nothing to change expectations around that September, October timeframe. obviously, potential delay of open AI into next year becomes a question of if you're anthropic, do you need to race and get out in September? Or do you want to have a better kind of visibility into your business maybe in that October, November timeframe?

15:52Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve of the workflow and your agent handles the rest.

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18:17Scarlet Fu:Listen on demand wherever you get your podcasts or watch us live on YouTube. We want to go now to our colleague in London who, along with his colleagues, have put together a list of 10 companies to watch for in the third quarter of 2026. There are companies that dabble in chips, chocolate and Barbie. So let's check in with Tim Craighead. He is our global chief content officer on the 10 companies that you want to watch for right now. Good morning, Tim. What's the first one you would want to highlight? Well, if you don't mind, I'll give you just a little bit of context on this. just to put it into some perspective.

18:53I think you've set it up quite well, but I would just simply add that these 10 are part of a broader group of what we call focus ideas, which are high conviction, fundamental views that our analysts have across sectors across the globe. There's about 160 of them. And the reason why we got to these 10 is that they all have timely catalysts coming up in the third quarter that we think can change the market perception, company by company. And look, the biggest one, it's in AI, it's very much, it seems like, out of favor is Microsoft. This is a stock that has been under pressure since last autumn, even while other hyperscalers like Amazon and Google have been trading better in the semiconductor companies, clearly, that are all AI-driven, have been on fire.

19:51And, you know, bottom line, it seems like the perception is that Microsoft is going to be disrupted, you know, to use the buzzword. But in our perspective, you know, they've got one of the biggest, if not the biggest, LLM cloud platforms that are being used. And they've got a new Microsoft 365 suite that comes out in the second half, we think both of those can continue to drive revenue that's going to positively surprise. Barbie, Mattel, what's the story there, Tim? Yeah, well, the interesting thing with this is not all of these focus ideas, not all of these 10 companies are constructive, positive calls.

20:36There's also ones where we're cautious or concerned. And that's the case with Mattel. there was a nice big surge in doll demand, Barbie demand in and around the Barbie movie a couple of years ago going back to your stomping around, Paul, in media and what we've seen since then is a progressive shift more towards building sets and trading cards in terms of what's cool in the world of toys, dolls or not And we think that there's continued disappointment from the standpoint of doll sales, specifically Barbie, as we look through the second half of the year.

21:19Scarlet Fu:I did see Toy Story, and I feel like, you know, maybe that gives a little bit of a jumpstart to some toys. You saw Toy Story 5? Toy Story 5. And what did you think? I liked it. Oh, good. Yeah, it was good. I liked, you know, the face-off against tech and screens and all that, but I digress. Tim, I wanted to get in. We will hear. Yeah, we will hear more about that in their earnings release. OK, so that is something we can update as we get closer to that. I want to get to a European company as well, because you have SolarEdge as a company to watch for in Europe. And I think about what's going on with the heat wave there and how energy security continues to be an issue for the continent.

21:58Yeah, it is all about energy security. and it's been lit up obviously yet again in the wake of the crisis or the conflict in the Middle East. It started to begin with Russia, Ukraine and Europe is in the hot seat, no pun intended. And the ramp up that we're seeing in terms of solar equipment related orders, we think will continue to surprise. It's been recovering for a couple of quarters, and we think that there is more to come and not fully yet appreciated. But it is all about its European business, even though I think it's actually based in Illinois. But the European opportunity is what's driving revenue surprise.

22:52Hong Kong Land. What is this company and why should we be paying attention? Yeah, so if either of you or any of the listeners have been to Hong Kong, one of the iconic buildings right on the central Hong Kong business district waterfront has these famous circular windows. That's these guys building along with many others. And the whole thing that's going on with Hong Kong in terms of office is it's coming back to life. You know, it was under a significant amount of pressure post-pandemic and the national security law being implemented. People were leaving. Businesses were leaving. But they are now coming back.

23:40There's a surge in the Hong Kong stock exchange. IPOs are alive. The financial markets are alive. Professionals are coming back. And rents are rising, and that asks out value for Hong Kong land specifically, we think is on the upswing.

23:57Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this.

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