May 10, 2024 • 25 mins
Featuring:
Mark Gurman, Bloomberg Chief Technology Correspondent, on Apple's plan to power new AI features using data centers and home-grown processors.
Julie Johnsson, Bloomberg Senior Aerospace Reporter, on the SEC's new probe into Boeing's safety claims.
Richard Harris, CEO of Port Shelter Investment Management, shares his outlook on markets from our Hong Kong studio.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis
along with Doug Krisner. Join us each day for the
stories making news and moving markets in the Asia Pacific.
You can subscribe to the show anywhere you get your
podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and
the Bloomberg Business app.
Speaker 3 (00:28):
Later this year, Apple will deliver some of its new
AI features using data centers engineered with Apple's in house
micro processors. This is part of a sweeping plan to
infuse Apple devices with AI capabilities, Sources telling Bloomberg, the
company will place its high end M two Ultra chips
(00:48):
in its cloud computing services. Those chips debuted last year
as part of the MacPro and Mac Studio computers. Simple
AI TESK will be processed directly on on Apples, computers
and mobile devices. Apple is expecting to lay out an
ambitious AI strategy at the Worldwide Developers Conference that will
(01:09):
happen on June tenth.
Speaker 2 (01:11):
Brian, all right, let's bring in Mark German for a
closer look at this story. Bloomberg Chief Global Technology correspondent
and one of the experts on Apple mark. So this
is in data centers. How does this actually work and
compare with AI inference?
Speaker 4 (01:32):
Very good question. So Apple's developing multiple large language models.
Some of the lms are going to run on the
devices themselves, so in the iPhone and the iPad, in
the Mac, in the Apple Watch. Another set of the
lms that Apple's developed are going to run on the
cloud itself. Why is that important, Well, some of these
large models can't actually fit or run on the processors
(01:55):
in the phone. You need more space, you need more
advanced processing power, go to the cloud. And so what
Apple's done is they outfitted some of their data centers
with M two Ultras, that's currently their highest end processors
with the biggest AI capabilities and processing horsepower. And so
the more advanced features like summarizing a lot of text,
image and text generation, those are going to rely on
(02:17):
the data centers, whereas simpler tasks are going to involve
running directly on the phone themselves.
Speaker 3 (02:24):
So in terms of the chip, I'm going to imagine
that the chip is being manufactured by TSMC, is Apple
partnering with another firm. In terms of the construction of
the actual server itself.
Speaker 5 (02:36):
Well, these chips, the M two Ultras, These shifts actually
last June, so these have been on the marketplace for
a while. And yeah, as you know, TSMC is the
exclusive manufacturing manufacturing partner for Apple's chips at this point, right,
so those are TSMC made. I don't expect this to
be a big boon to TSMC. This is part of
the normal cadence of manufacturing for these chips. Anyways, there's
(03:00):
a new chip that's the M four that Apple announced
in the iPad pro earlier this week. A version of
that next year. Later next year will come to the
data centers for more increases in processing power as they
expand the cloud performance.
Speaker 2 (03:13):
Here, perhaps we can talk a little bit more about
these AI type of chips. But I also wanted to
get to a comment by the ARM CEO, Renee Haas
he talked about how geopolitics has hurt Apple in China
and that local brands are getting featured there and we
understand that, but he also said that they're not going
to seed that ground. And I'm wondering how that translates
(03:38):
and what it translates into. Does that mean that Apple
might get more aggressive on pricing in China?
Speaker 4 (03:45):
Well to that end, here's the good news for Apple
and China. They've been losing some steam there, they've been
losing some share there, but they've done nothing to stop
the bleeding. They haven't pulled any lever available to them
to try to turn things around there, right, And so
the good news is it's very likely as they start
pulling those levers, you're going to start seeing a turnaround. Pricing,
(04:08):
lower end devices, colors, promotions, new financing plans, particular to
the Chinese market, those are all things you can see
Apple try to engage with over the coming months.
Speaker 3 (04:19):
So, Mark, if we circle back and talk a little
bit about Apple's approach to artificial intelligence. We know that Microsoft,
for example, has been working with open Ai. In fact,
they have a big position in the company. And then
down the road in Silicon Valley you've got Google, Alphabet
really in partnership with Anthropic along with Amazon. Is Apple
(04:41):
choosing to partner with anybody when it comes to artificial intelligence.
Speaker 4 (04:46):
So the models that I described, the cloud model as
well as the in house model, those are developed internally
at Apple, and so those are Apple models. However, Apple
has not developed its own gender Todai chatbot things like
Google Gemini, things like open AI's chat GPT. That's actually
where Gemini from Google and open i come into play.
(05:09):
Apple is in talks with both of those companies to
partner with them to implement their chatbots zeep into the
new version of iOS and the new iPhones coming in
the fall in September, I expect Apple to ultimately partner
with open Ai. Talks have advanced, they've intensified. I've reported
a couple of weeks ago, and at this point it
(05:30):
seems pretty likely that there's going to be a deal
with open Ai reached by June when this announcement is expected.
And it's also possible becomes you an agreement with Google
at some point too.
Speaker 2 (05:41):
And I also wanted to ask you about this ad
that they now have that Apple now has said we'll
not run on television about the iPad and the destruction
of a lot of creative tools let's say the human
condition has been using for thousands of years into a iPad.
Just your thoughts about the thinking behind that and perhaps
(06:05):
where and how it went wrong.
Speaker 4 (06:07):
I see exactly what Apple was trying to do, but
here's a very simplistic perspective. They are trying to show
that the iPad is super thin, and they're using a
you know, an industrial press machine to squeeze in all
the items that are in a that people can do
on the iPad, the physical items, but squeeze it into
that really thin five millimeter device. So that's what they
(06:29):
tried to do. How it appeared Apple's destroying everything that
people love from the real world in favor of using
the iPad. Not a great look. Obviously they missed the mark.
If they have come to that conclusion beforehand, maybe they
wouldn't have done it this way. I think it was
a ridiculous move that this ad even made it to market.
(06:50):
But I guess this is like the third apology in
the history of Apple. So we'll take this one until
the next start, think fifteen years from now.
Speaker 3 (06:58):
So give us your assessment of the new iPad. I mean,
it's been a while since they've updated this product line.
I mean, what's your take.
Speaker 4 (07:06):
It's a spec bump. It looks better, it's cooler, it
doesn't do anything new, it doesn't change the iPad story.
They still need to upgrade the software on this thing
to make it more like a macroplacement or a laptop.
Success or it doesn't do anything differently than the last iPad,
the iPad before that, or the ten models before that.
So the hardware is awesome, but the hardware on the
(07:27):
iPad has always been awesome. The problem's always been the software.
This doesn't change that one bit.
Speaker 2 (07:34):
Yeah, so the iPad was positioned between the phone and
the laptop, but a lot closer to the phone than
the phone got bigger. So, as I've read from a
lot of the stuff that you've written, you know this
is an effort going in the other direction. How much
further does it need to go to get closer to
a you know, to a laptop without actually trying to
(07:57):
become one.
Speaker 4 (07:58):
Well, I'll answer it this way. It needs to become
a laptop. They need to go all the way or
this device.
Speaker 2 (08:04):
And why do you need a laptop? Then if you've
if you've got an iPad that is a laptop.
Speaker 4 (08:09):
Well, the Mac line isn't doing so hot, the iPad
line is not doing so hot. You should create, if
you're Apple, the best version of the iPad that you
can make, and they're just holding that product back. So
what if it kills the laptop? Something's going to kill
the laptop? One day it might as well be Apple.
But right now they're just kind of screwing around and
creating the Twitter device. They've moved way past that. The
(08:32):
market has moved way past that. It's time to kill
the laptop or make this a laptop replacement, make the
laptops even better.
Speaker 2 (08:40):
German tells it like it is, Mark, thank you for
joining us. Some very interesting comments there, Mark German, Bloomberg,
Chief Global Technology Correspondent. The Security is In Exchange Commission
is launching a probe into claims made by Boeing about
(09:01):
its own safety practices. This after a January accident aboard
one of the seven thirty seven Max nine planes. Joining
us now is Julie Johnson, Bloomberg, Senior Aerospace reporter. So
what is it that the SEC is particularly concerned about
that perhaps these comments about the safety record were inaccurate
(09:22):
or went too far.
Speaker 1 (09:23):
Well, that's what we'll find out or or not. We'd
love to know a little bit more about what they're
what they're looking into, and whether whether the company made
maybe made assurances to investors. I mean, they've been stressing
safety publicly ever since the twenty nineteen you know, accidents
(09:47):
and global grounding. So it's you know, I think the
regulator regulators will want to know whether Boeing may be
over sold what was going on in its own factories,
but the actual details we don't have.
Speaker 3 (10:05):
So this is the panel that brew off that Max nine,
the Alaska Airlines flight AM I right about that, and
since that time, there have been a lot of other
issues that the company has had to address regarding things
like safety and design and manufacturing.
Speaker 1 (10:21):
Yeah, that that January incident really sort of precipitated this
whole crisis, and so Boeing's being investigated on a number
of fund fronts. You've got the FAA and NTSB, you know,
looking into what happened with that accident, what went wrong
within Boeing's own factories. And then the FAA has come
(10:44):
down really hard on on Boeing over the last few
months and has its auditors, you know, in Boeing's factories
and looking very closely at quality controls and safety and
Boeing's Boeing's got a critical report coming up on that.
(11:05):
And then there's a criminal investigation launched by the Justice
Department and the grand jury in Seattle. So it's it's
really been something.
Speaker 2 (11:14):
Else for Boeing Julie. Is there any suggestion of a
whistleblower on this?
Speaker 1 (11:20):
I don't think so. I think this is more looking
at whether the company's private practices uh were in line
with what it was saying publicly around what was going
on in its factory. And just as a reminder with
the SEC, we don't know of any allegations of wrongdoing here.
(11:42):
And these enforced enforcement actions don't you know, don't always
flow from investigations, but quite often the agency can levy
finds against the company or the corporate officers.
Speaker 3 (11:58):
So it's not just going from might understand. I mean
Spirit Arrow Systems, which is the company that manu factiously
the wing assembly the fuselage. That company also has some exposure.
But are they going to be swept up in this
SEC probe?
Speaker 2 (12:13):
Do you think yes?
Speaker 1 (12:15):
Actually, one of the interesting things is that we found
out about this in part because Spirit had a very
detailed explanation of the various probes and subpoenas that it's
facing in a quarterly financial statement that it made on Tuesday,
and they disclosed that the SEC had subpoened them, you know,
(12:40):
related to the seven thirty seven MAX issues in the
Alaska incident. They didn't provide a whole lot of details,
but it was pretty clear the agency was looking hard
at Spirit and they're so closely tied to Boeing on
this that you know that it made sense that Boeing
was also, you know, a target.
Speaker 2 (13:02):
Julie, do we have any new information about exactly what's
happening with the chief executive officer position at Going Oh.
Speaker 1 (13:10):
I'd love to know what's going on there. The board
is searching for, you know, a new CEO, and they
launched that that search back in March, and it's being
led by the chairman, Steve Mallenkopf and Dennis or sorry,
Tennis Ballenberg is.
Speaker 4 (13:29):
The former CEO.
Speaker 1 (13:30):
Dave Yeah, Dave Calhoun, the current CEO is is staying
on until a successor is found. And the board's sort
of given itself a lot of leeway with that search
and by saying, you know that Calhoun will be around
through the end of the year, but you get the
sense that they would like to get this done sooner
(13:52):
rather than later, just because right now it's it's a
bad time to be you know, I'm in transition to your.
Speaker 3 (14:00):
Leader, and it's a bad time for the airlines that
have been waiting for new aircraft. I mean, that's the
other part of the story, that production has come to
a virtual standstill and you have many airlines that have
been unable to take delivery of new aircraft.
Speaker 1 (14:14):
Yeah, that's so true. It's it really has become a
huge sort of pressure point for the whole industry. And
you've seen a lot of frustration voiced by the US
carriers as well. And you know, I mean, Boeing's got
its own problems, but everybody's struggling. I mean, Airbus is
(14:34):
doing better, but they're not They're not hitting delivery targets either.
So it's just a bad time for an airline, you
know that that's out there looking for planes.
Speaker 2 (14:45):
I'm kind of curious something that you alluded to moments ago,
but I'd like to hear more on it about the
coordination and or differences between the SEC and the FAA
when it comes to Boeing.
Speaker 1 (14:58):
Yeah, that's a that's a really great question. I wish
I knew what was going on behind the scenes, but
you know, because sometimes we just we get our information
sort of bit by bit and we don't have the
entire picture. But you know, the FAA got sort of
(15:19):
a black eye for certifying the seven thirty seven max
and standing by Boeing back in twenty nineteen when these
tragedies happened and some of Boeing's shortcomings were made public.
And so they've been this time around. They've just been very,
very diligent. And I think that the SEC action is
(15:40):
something you would expect. And it's an election year in
the US, by the way, so everybody's going to want to,
you know, stay on top of this.
Speaker 3 (15:50):
This situation one of the interesting things and maybe you
can weigh in very quickly on this, Julie. One of
the very interesting things about this industry, and I'm talking
about aerospace as a real rates to commercial aircraft, that
these manufacturers are almost self regulated. They are expected to
do a fair amount of the monitoring that you would
expect a federal agency would do during the manufacturing process.
Speaker 1 (16:13):
Oh, I know, it's a real conundrum for everybody, and
the FAA is not a huge agency. This is part
of the problem. And to fully fund them to go back,
you know to the days when they were climbing all
over Boeing's factories would be you know, that takes a
lot of money, and US Congress has been cutting, you know,
(16:36):
cutting their bundt for years. So yeah, it's that complicated, Yes,
sure does.
Speaker 2 (16:42):
Julie, thank you so much for joining us. Julie Johnson
Bloomberg senior aerospace reporter. Joining us now in our studios
for a closer look at markets is Richard Harris, CEO
of Port Shelter Investment Management. Richard, thanks for coming into
the studios. So May has been a reasonably good period
(17:05):
here for both stocks and bonds, and we're waiting on
confirmation of any kind of economic slowdown. And the reason
why that's being seen as good news, obviously is it
might take a little pressure off the FED. But when
you get these like we had the claims that Doug
mentioned earlier, claims jumping a little bit, you wonder whether
(17:26):
or not this is a welcome cooling of the labor
market or some sort of unwelcome development, like a more
serious slowdown.
Speaker 6 (17:34):
Your thoughts, well, well, the market seems to have the
emphasis of the moment of eat, drink and be merry
for tomorrow. We die because we have good news and
the markets go up. We have slightly bad news and
the markets go down. I do think that unemployment is
going to be a very big indicator looking out forward,
because we are relying on consumer growth driving earnings in
(17:55):
the market. So yes, that's a very big narrative going through.
But I'm not sure that we're actually there yet. I
think that what we're seeing is that the market's quite
happy to take a rather bullish view, risk on view
all the way through, despite the fact that elements of
bad news. You know, as we were looking over ago,
the market has been relatively flat, despite the fact that
(18:16):
we've had issues with huties, issues in hor Moos, the
whole escapade in Gus, and the mark's been reatively flat.
There are a lot of bad news out there, but
the market doesn't really want to look at it.
Speaker 3 (18:26):
I guess we can refer to this as the Dionician trade.
Is that fair? I mean, at least for the moment,
right eat, drink and be merry and let it rip
to the upside for as long as it's able. And
I'm curious to get your take on what's happening in
China right now. So much of what we have focused
on here is the FED and whether or not we're
going to get a rate cut before the end of
the year. The earnings to the quality of corporate earnings
(18:48):
here in the States have been okay, but there's been
a perhaps a bigger question over a lot of what's
happening in China. We were talking yesterday about the fact
that the market's been powering ahead. Maybe this is just
kind of the introduction of a lot of foreign capital
that's testing the water in China. How much do you
(19:08):
think of what the move that we have seen, either
in Hong Kong or on the mainland is predicated on
the assumption that the quality of earnings is going to
begin to improve for Chinese firms.
Speaker 6 (19:18):
Well, I think that's right, but I think a lot
of the move at the moment has been stress relief.
You know, we've had very weak period in China. We
had huge expectations both COVID and nothing really came of it.
The Hong Kong market has been especially bad, and the
Hong Kong market's probably likely to act as a warrant
on China, you know, worse when China does bet does worse,
and better when China does better. China has recently been
(19:40):
doing better, and one key reason for this, of course,
is that the authorities need to keep that economy going.
They can't have it in the slough of despond for
a long period of time. So they have put a
lot of stimulus into the market pretty well at trillion dollars,
you know, which even for China's a reasonable amount of
money that's starting to come through. They use the big Bazuka.
(20:01):
But there are signs so they may actually be now
looking at restructuring the property market, maybe putting some of
the bad debt into a bad bank, put it aside,
making sure the apartments there already been bull to finish
these kind of things. If they can tackle that property market,
I think the sentiment in China will improve dramatically.
Speaker 2 (20:19):
The tricky part, Richard, is that markets get out in
front of the actual data. That's why I don't think
that really smart investors are always data dependent. For instance,
you look at the HANKSNG index. It has matched the
S and P five hundred year today nine percent higher
for both. And we have not seen good earnings in
(20:40):
Hong Kong, we have not seen good earnings in China,
and yet the market has moved out. So we've talked
also about the queues. The ETF that looks at Nazaq
one hundred and it's actually flat for the past three months,
and yet there hasn't been bad earnings from companies like
Nvidia and Broadcom. So give me something where you're looking
(21:01):
out into the future that the data of the day
is not telling us.
Speaker 1 (21:04):
Well.
Speaker 6 (21:05):
I mean, you make an extremely good point, Brian, because
you know what we're talking here is the wisdom of
the crowd. We all know the market. The crowd seems
to sense that good news is coming through. You know,
why is it that markets are doing quite well? And
then the data comes through and say, oh, that's why
the market was doing well, you know, because the probabilities
of things happening become sharper towards as time goes on.
(21:30):
And I think that's what we're seeing with this forecasting element.
But doesn't it take you back to a big question
about the FED? The FED is always data dependent. Well,
if you're waiting for data to come through, it's too late.
And maybe this is a problem with so many people
in the FED being economists. Maybe you should have more
bankers in the FED who actually spend their time looking
(21:51):
forward and not back.
Speaker 3 (21:52):
So the FED has obviously been a key theme. Another
key theme has been artificial intelligence. We were talking about armholdings.
We were talking about Apple a short while ago, getting
ready to unveil some new AI features later in the year.
How are you feeling about AI as a trade still?
Does it have legs or would you be concerned maybe
(22:13):
that things are a little overextended in certain areas and
it would be prudent to remove a little bit of risk.
Speaker 6 (22:20):
Well, the AI bubble reminds me a little bit of
the dot com bubble of the two thousands, but you know,
I don't think it's anything like that. I think it's
a mere shadow of that. And yes, we don't really
know what AI is going to do. We had maybe
a bit of a clear impact of what the Internet
was going to do, but we didn't really know. You know,
is it going to be the most fantastic thing. Is
(22:41):
it going to be a disaster. It'll be a bit
of both. And I think we still have to learn
how AI is going to work, like the early days
of the automobile when a man walked in front of
it with the red flag. So we're still looking at that.
But I think that AI is clearly going to be important.
There are new things happening. I mean, Apple is particularly
interesting in that they're using their own chips for some
(23:03):
of this stuff. And everybody thought Apple was dead about
two weeks ago. You know, it was an exposure that
China the ecosystem slid down, iPad slaying down, and all
of a sudden, you have this new thing coming through
where Apple actually does have a stake in it. So
all of these things are happening at the moment. I
don't think the AI bubble is over yet.
Speaker 2 (23:22):
You keep referring to it as an AI bubble, and
yet the earnings for a lot of these companies are
growing into the valuations. I know that Doug Richard has
done a PhD in market narratives, so he's quite an
expert on narratives, and he got that PhD in his sixties,
which is pretty pretty impressive.
Speaker 6 (23:43):
So last year, by the way, I.
Speaker 2 (23:46):
Know, it's really quite quite intense and amazing. But but
you know, do you think you're jumping the gun a
little bit with saying bubble because we have not seen yet,
you know, the full ramifications, the full implications of official intelligence.
Speaker 6 (24:01):
Well that's right, but we go back to what we
were saying a moment earlier. You know, isn't the wisdom
of the crowd picking out the potential benefits of these
things early on. You know, why is the market moving
in the way it is. Why does it have this
risk on element when we've had two wars, we've had
issues with China, sluggish growth, a load of risks out there,
(24:23):
and yet the market still continues. There is an underlying
narrative I think from AI that at the moment for
markets is more positive than negative.
Speaker 3 (24:30):
I'm still going back to the guy who stepped out
in front of the Model T with the red flag.
Was he run over or did the car stop? Well?
Speaker 6 (24:38):
I guess when they changed into second gear. When they
found the second gear, then he was in trouble.
Speaker 2 (24:43):
All right, Richard, we'll probably have to leave it there.
Thanks very much for coming into the studios. Always an
interesting conversation. Richard Harris is CEO of Port Shelter Investment Management.
Speaker 3 (24:57):
This has been the Bloomberg Daybreak Asia podcast, bringing you
the stories making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
the podcast on Apple, Spotify, or anywhere else you listen
and always on Bloomberg Radio, the Bloomberg Terminal, and the
(25:17):
Bloomberg Business App.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis
along with Doug Krisner. Join us each day for the
stories making news and moving markets in the Asia Pacific.
You can subscribe to the show anywhere you get your
podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and
the Bloomberg Business app.
Speaker 3 (00:28):
Later this year, Apple will deliver some of its new
AI features using data centers engineered with Apple's in house
micro processors. This is part of a sweeping plan to
infuse Apple devices with AI capabilities, Sources telling Bloomberg, the
company will place its high end M two Ultra chips
(00:48):
in its cloud computing services. Those chips debuted last year
as part of the MacPro and Mac Studio computers. Simple
AI TESK will be processed directly on on Apples, computers
and mobile devices. Apple is expecting to lay out an
ambitious AI strategy at the Worldwide Developers Conference that will
(01:09):
happen on June tenth.
Speaker 2 (01:11):
Brian, all right, let's bring in Mark German for a
closer look at this story. Bloomberg Chief Global Technology correspondent
and one of the experts on Apple mark. So this
is in data centers. How does this actually work and
compare with AI inference?
Speaker 4 (01:32):
Very good question. So Apple's developing multiple large language models.
Some of the lms are going to run on the
devices themselves, so in the iPhone and the iPad, in
the Mac, in the Apple Watch. Another set of the
lms that Apple's developed are going to run on the
cloud itself. Why is that important, Well, some of these
large models can't actually fit or run on the processors
(01:55):
in the phone. You need more space, you need more
advanced processing power, go to the cloud. And so what
Apple's done is they outfitted some of their data centers
with M two Ultras, that's currently their highest end processors
with the biggest AI capabilities and processing horsepower. And so
the more advanced features like summarizing a lot of text,
image and text generation, those are going to rely on
(02:17):
the data centers, whereas simpler tasks are going to involve
running directly on the phone themselves.
Speaker 3 (02:24):
So in terms of the chip, I'm going to imagine
that the chip is being manufactured by TSMC, is Apple
partnering with another firm. In terms of the construction of
the actual server itself.
Speaker 5 (02:36):
Well, these chips, the M two Ultras, These shifts actually
last June, so these have been on the marketplace for
a while. And yeah, as you know, TSMC is the
exclusive manufacturing manufacturing partner for Apple's chips at this point, right,
so those are TSMC made. I don't expect this to
be a big boon to TSMC. This is part of
the normal cadence of manufacturing for these chips. Anyways, there's
(03:00):
a new chip that's the M four that Apple announced
in the iPad pro earlier this week. A version of
that next year. Later next year will come to the
data centers for more increases in processing power as they
expand the cloud performance.
Speaker 2 (03:13):
Here, perhaps we can talk a little bit more about
these AI type of chips. But I also wanted to
get to a comment by the ARM CEO, Renee Haas
he talked about how geopolitics has hurt Apple in China
and that local brands are getting featured there and we
understand that, but he also said that they're not going
to seed that ground. And I'm wondering how that translates
(03:38):
and what it translates into. Does that mean that Apple
might get more aggressive on pricing in China?
Speaker 4 (03:45):
Well to that end, here's the good news for Apple
and China. They've been losing some steam there, they've been
losing some share there, but they've done nothing to stop
the bleeding. They haven't pulled any lever available to them
to try to turn things around there, right, And so
the good news is it's very likely as they start
pulling those levers, you're going to start seeing a turnaround. Pricing,
(04:08):
lower end devices, colors, promotions, new financing plans, particular to
the Chinese market, those are all things you can see
Apple try to engage with over the coming months.
Speaker 3 (04:19):
So, Mark, if we circle back and talk a little
bit about Apple's approach to artificial intelligence. We know that Microsoft,
for example, has been working with open Ai. In fact,
they have a big position in the company. And then
down the road in Silicon Valley you've got Google, Alphabet
really in partnership with Anthropic along with Amazon. Is Apple
(04:41):
choosing to partner with anybody when it comes to artificial intelligence.
Speaker 4 (04:46):
So the models that I described, the cloud model as
well as the in house model, those are developed internally
at Apple, and so those are Apple models. However, Apple
has not developed its own gender Todai chatbot things like
Google Gemini, things like open AI's chat GPT. That's actually
where Gemini from Google and open i come into play.
(05:09):
Apple is in talks with both of those companies to
partner with them to implement their chatbots zeep into the
new version of iOS and the new iPhones coming in
the fall in September, I expect Apple to ultimately partner
with open Ai. Talks have advanced, they've intensified. I've reported
a couple of weeks ago, and at this point it
(05:30):
seems pretty likely that there's going to be a deal
with open Ai reached by June when this announcement is expected.
And it's also possible becomes you an agreement with Google
at some point too.
Speaker 2 (05:41):
And I also wanted to ask you about this ad
that they now have that Apple now has said we'll
not run on television about the iPad and the destruction
of a lot of creative tools let's say the human
condition has been using for thousands of years into a iPad.
Just your thoughts about the thinking behind that and perhaps
(06:05):
where and how it went wrong.
Speaker 4 (06:07):
I see exactly what Apple was trying to do, but
here's a very simplistic perspective. They are trying to show
that the iPad is super thin, and they're using a
you know, an industrial press machine to squeeze in all
the items that are in a that people can do
on the iPad, the physical items, but squeeze it into
that really thin five millimeter device. So that's what they
(06:29):
tried to do. How it appeared Apple's destroying everything that
people love from the real world in favor of using
the iPad. Not a great look. Obviously they missed the mark.
If they have come to that conclusion beforehand, maybe they
wouldn't have done it this way. I think it was
a ridiculous move that this ad even made it to market.
(06:50):
But I guess this is like the third apology in
the history of Apple. So we'll take this one until
the next start, think fifteen years from now.
Speaker 3 (06:58):
So give us your assessment of the new iPad. I mean,
it's been a while since they've updated this product line.
I mean, what's your take.
Speaker 4 (07:06):
It's a spec bump. It looks better, it's cooler, it
doesn't do anything new, it doesn't change the iPad story.
They still need to upgrade the software on this thing
to make it more like a macroplacement or a laptop.
Success or it doesn't do anything differently than the last iPad,
the iPad before that, or the ten models before that.
So the hardware is awesome, but the hardware on the
(07:27):
iPad has always been awesome. The problem's always been the software.
This doesn't change that one bit.
Speaker 2 (07:34):
Yeah, so the iPad was positioned between the phone and
the laptop, but a lot closer to the phone than
the phone got bigger. So, as I've read from a
lot of the stuff that you've written, you know this
is an effort going in the other direction. How much
further does it need to go to get closer to
a you know, to a laptop without actually trying to
(07:57):
become one.
Speaker 4 (07:58):
Well, I'll answer it this way. It needs to become
a laptop. They need to go all the way or
this device.
Speaker 2 (08:04):
And why do you need a laptop? Then if you've
if you've got an iPad that is a laptop.
Speaker 4 (08:09):
Well, the Mac line isn't doing so hot, the iPad
line is not doing so hot. You should create, if
you're Apple, the best version of the iPad that you
can make, and they're just holding that product back. So
what if it kills the laptop? Something's going to kill
the laptop? One day it might as well be Apple.
But right now they're just kind of screwing around and
creating the Twitter device. They've moved way past that. The
(08:32):
market has moved way past that. It's time to kill
the laptop or make this a laptop replacement, make the
laptops even better.
Speaker 2 (08:40):
German tells it like it is, Mark, thank you for
joining us. Some very interesting comments there, Mark German, Bloomberg,
Chief Global Technology Correspondent. The Security is In Exchange Commission
is launching a probe into claims made by Boeing about
(09:01):
its own safety practices. This after a January accident aboard
one of the seven thirty seven Max nine planes. Joining
us now is Julie Johnson, Bloomberg, Senior Aerospace reporter. So
what is it that the SEC is particularly concerned about
that perhaps these comments about the safety record were inaccurate
(09:22):
or went too far.
Speaker 1 (09:23):
Well, that's what we'll find out or or not. We'd
love to know a little bit more about what they're
what they're looking into, and whether whether the company made
maybe made assurances to investors. I mean, they've been stressing
safety publicly ever since the twenty nineteen you know, accidents
(09:47):
and global grounding. So it's you know, I think the
regulator regulators will want to know whether Boeing may be
over sold what was going on in its own factories,
but the actual details we don't have.
Speaker 3 (10:05):
So this is the panel that brew off that Max nine,
the Alaska Airlines flight AM I right about that, and
since that time, there have been a lot of other
issues that the company has had to address regarding things
like safety and design and manufacturing.
Speaker 1 (10:21):
Yeah, that that January incident really sort of precipitated this
whole crisis, and so Boeing's being investigated on a number
of fund fronts. You've got the FAA and NTSB, you know,
looking into what happened with that accident, what went wrong
within Boeing's own factories. And then the FAA has come
(10:44):
down really hard on on Boeing over the last few
months and has its auditors, you know, in Boeing's factories
and looking very closely at quality controls and safety and
Boeing's Boeing's got a critical report coming up on that.
(11:05):
And then there's a criminal investigation launched by the Justice
Department and the grand jury in Seattle. So it's it's
really been something.
Speaker 2 (11:14):
Else for Boeing Julie. Is there any suggestion of a
whistleblower on this?
Speaker 1 (11:20):
I don't think so. I think this is more looking
at whether the company's private practices uh were in line
with what it was saying publicly around what was going
on in its factory. And just as a reminder with
the SEC, we don't know of any allegations of wrongdoing here.
(11:42):
And these enforced enforcement actions don't you know, don't always
flow from investigations, but quite often the agency can levy
finds against the company or the corporate officers.
Speaker 3 (11:58):
So it's not just going from might understand. I mean
Spirit Arrow Systems, which is the company that manu factiously
the wing assembly the fuselage. That company also has some exposure.
But are they going to be swept up in this
SEC probe?
Speaker 2 (12:13):
Do you think yes?
Speaker 1 (12:15):
Actually, one of the interesting things is that we found
out about this in part because Spirit had a very
detailed explanation of the various probes and subpoenas that it's
facing in a quarterly financial statement that it made on Tuesday,
and they disclosed that the SEC had subpoened them, you know,
(12:40):
related to the seven thirty seven MAX issues in the
Alaska incident. They didn't provide a whole lot of details,
but it was pretty clear the agency was looking hard
at Spirit and they're so closely tied to Boeing on
this that you know that it made sense that Boeing
was also, you know, a target.
Speaker 2 (13:02):
Julie, do we have any new information about exactly what's
happening with the chief executive officer position at Going Oh.
Speaker 1 (13:10):
I'd love to know what's going on there. The board
is searching for, you know, a new CEO, and they
launched that that search back in March, and it's being
led by the chairman, Steve Mallenkopf and Dennis or sorry,
Tennis Ballenberg is.
Speaker 4 (13:29):
The former CEO.
Speaker 1 (13:30):
Dave Yeah, Dave Calhoun, the current CEO is is staying
on until a successor is found. And the board's sort
of given itself a lot of leeway with that search
and by saying, you know that Calhoun will be around
through the end of the year, but you get the
sense that they would like to get this done sooner
(13:52):
rather than later, just because right now it's it's a
bad time to be you know, I'm in transition to your.
Speaker 3 (14:00):
Leader, and it's a bad time for the airlines that
have been waiting for new aircraft. I mean, that's the
other part of the story, that production has come to
a virtual standstill and you have many airlines that have
been unable to take delivery of new aircraft.
Speaker 1 (14:14):
Yeah, that's so true. It's it really has become a
huge sort of pressure point for the whole industry. And
you've seen a lot of frustration voiced by the US
carriers as well. And you know, I mean, Boeing's got
its own problems, but everybody's struggling. I mean, Airbus is
(14:34):
doing better, but they're not They're not hitting delivery targets either.
So it's just a bad time for an airline, you
know that that's out there looking for planes.
Speaker 2 (14:45):
I'm kind of curious something that you alluded to moments ago,
but I'd like to hear more on it about the
coordination and or differences between the SEC and the FAA
when it comes to Boeing.
Speaker 1 (14:58):
Yeah, that's a that's a really great question. I wish
I knew what was going on behind the scenes, but
you know, because sometimes we just we get our information
sort of bit by bit and we don't have the
entire picture. But you know, the FAA got sort of
(15:19):
a black eye for certifying the seven thirty seven max
and standing by Boeing back in twenty nineteen when these
tragedies happened and some of Boeing's shortcomings were made public.
And so they've been this time around. They've just been very,
very diligent. And I think that the SEC action is
(15:40):
something you would expect. And it's an election year in
the US, by the way, so everybody's going to want to,
you know, stay on top of this.
Speaker 3 (15:50):
This situation one of the interesting things and maybe you
can weigh in very quickly on this, Julie. One of
the very interesting things about this industry, and I'm talking
about aerospace as a real rates to commercial aircraft, that
these manufacturers are almost self regulated. They are expected to
do a fair amount of the monitoring that you would
expect a federal agency would do during the manufacturing process.
Speaker 1 (16:13):
Oh, I know, it's a real conundrum for everybody, and
the FAA is not a huge agency. This is part
of the problem. And to fully fund them to go back,
you know to the days when they were climbing all
over Boeing's factories would be you know, that takes a
lot of money, and US Congress has been cutting, you know,
(16:36):
cutting their bundt for years. So yeah, it's that complicated, Yes,
sure does.
Speaker 2 (16:42):
Julie, thank you so much for joining us. Julie Johnson
Bloomberg senior aerospace reporter. Joining us now in our studios
for a closer look at markets is Richard Harris, CEO
of Port Shelter Investment Management. Richard, thanks for coming into
the studios. So May has been a reasonably good period
(17:05):
here for both stocks and bonds, and we're waiting on
confirmation of any kind of economic slowdown. And the reason
why that's being seen as good news, obviously is it
might take a little pressure off the FED. But when
you get these like we had the claims that Doug
mentioned earlier, claims jumping a little bit, you wonder whether
(17:26):
or not this is a welcome cooling of the labor
market or some sort of unwelcome development, like a more
serious slowdown.
Speaker 6 (17:34):
Your thoughts, well, well, the market seems to have the
emphasis of the moment of eat, drink and be merry
for tomorrow. We die because we have good news and
the markets go up. We have slightly bad news and
the markets go down. I do think that unemployment is
going to be a very big indicator looking out forward,
because we are relying on consumer growth driving earnings in
(17:55):
the market. So yes, that's a very big narrative going through.
But I'm not sure that we're actually there yet. I
think that what we're seeing is that the market's quite
happy to take a rather bullish view, risk on view
all the way through, despite the fact that elements of
bad news. You know, as we were looking over ago,
the market has been relatively flat, despite the fact that
(18:16):
we've had issues with huties, issues in hor Moos, the
whole escapade in Gus, and the mark's been reatively flat.
There are a lot of bad news out there, but
the market doesn't really want to look at it.
Speaker 3 (18:26):
I guess we can refer to this as the Dionician trade.
Is that fair? I mean, at least for the moment,
right eat, drink and be merry and let it rip
to the upside for as long as it's able. And
I'm curious to get your take on what's happening in
China right now. So much of what we have focused
on here is the FED and whether or not we're
going to get a rate cut before the end of
the year. The earnings to the quality of corporate earnings
(18:48):
here in the States have been okay, but there's been
a perhaps a bigger question over a lot of what's
happening in China. We were talking yesterday about the fact
that the market's been powering ahead. Maybe this is just
kind of the introduction of a lot of foreign capital
that's testing the water in China. How much do you
(19:08):
think of what the move that we have seen, either
in Hong Kong or on the mainland is predicated on
the assumption that the quality of earnings is going to
begin to improve for Chinese firms.
Speaker 6 (19:18):
Well, I think that's right, but I think a lot
of the move at the moment has been stress relief.
You know, we've had very weak period in China. We
had huge expectations both COVID and nothing really came of it.
The Hong Kong market has been especially bad, and the
Hong Kong market's probably likely to act as a warrant
on China, you know, worse when China does bet does worse,
and better when China does better. China has recently been
(19:40):
doing better, and one key reason for this, of course,
is that the authorities need to keep that economy going.
They can't have it in the slough of despond for
a long period of time. So they have put a
lot of stimulus into the market pretty well at trillion dollars,
you know, which even for China's a reasonable amount of
money that's starting to come through. They use the big Bazuka.
(20:01):
But there are signs so they may actually be now
looking at restructuring the property market, maybe putting some of
the bad debt into a bad bank, put it aside,
making sure the apartments there already been bull to finish
these kind of things. If they can tackle that property market,
I think the sentiment in China will improve dramatically.
Speaker 2 (20:19):
The tricky part, Richard, is that markets get out in
front of the actual data. That's why I don't think
that really smart investors are always data dependent. For instance,
you look at the HANKSNG index. It has matched the
S and P five hundred year today nine percent higher
for both. And we have not seen good earnings in
(20:40):
Hong Kong, we have not seen good earnings in China,
and yet the market has moved out. So we've talked
also about the queues. The ETF that looks at Nazaq
one hundred and it's actually flat for the past three months,
and yet there hasn't been bad earnings from companies like
Nvidia and Broadcom. So give me something where you're looking
(21:01):
out into the future that the data of the day
is not telling us.
Speaker 1 (21:04):
Well.
Speaker 6 (21:05):
I mean, you make an extremely good point, Brian, because
you know what we're talking here is the wisdom of
the crowd. We all know the market. The crowd seems
to sense that good news is coming through. You know,
why is it that markets are doing quite well? And
then the data comes through and say, oh, that's why
the market was doing well, you know, because the probabilities
of things happening become sharper towards as time goes on.
(21:30):
And I think that's what we're seeing with this forecasting element.
But doesn't it take you back to a big question
about the FED? The FED is always data dependent. Well,
if you're waiting for data to come through, it's too late.
And maybe this is a problem with so many people
in the FED being economists. Maybe you should have more
bankers in the FED who actually spend their time looking
(21:51):
forward and not back.
Speaker 3 (21:52):
So the FED has obviously been a key theme. Another
key theme has been artificial intelligence. We were talking about armholdings.
We were talking about Apple a short while ago, getting
ready to unveil some new AI features later in the year.
How are you feeling about AI as a trade still?
Does it have legs or would you be concerned maybe
(22:13):
that things are a little overextended in certain areas and
it would be prudent to remove a little bit of risk.
Speaker 6 (22:20):
Well, the AI bubble reminds me a little bit of
the dot com bubble of the two thousands, but you know,
I don't think it's anything like that. I think it's
a mere shadow of that. And yes, we don't really
know what AI is going to do. We had maybe
a bit of a clear impact of what the Internet
was going to do, but we didn't really know. You know,
is it going to be the most fantastic thing. Is
(22:41):
it going to be a disaster. It'll be a bit
of both. And I think we still have to learn
how AI is going to work, like the early days
of the automobile when a man walked in front of
it with the red flag. So we're still looking at that.
But I think that AI is clearly going to be important.
There are new things happening. I mean, Apple is particularly
interesting in that they're using their own chips for some
(23:03):
of this stuff. And everybody thought Apple was dead about
two weeks ago. You know, it was an exposure that
China the ecosystem slid down, iPad slaying down, and all
of a sudden, you have this new thing coming through
where Apple actually does have a stake in it. So
all of these things are happening at the moment. I
don't think the AI bubble is over yet.
Speaker 2 (23:22):
You keep referring to it as an AI bubble, and
yet the earnings for a lot of these companies are
growing into the valuations. I know that Doug Richard has
done a PhD in market narratives, so he's quite an
expert on narratives, and he got that PhD in his sixties,
which is pretty pretty impressive.
Speaker 6 (23:43):
So last year, by the way, I.
Speaker 2 (23:46):
Know, it's really quite quite intense and amazing. But but
you know, do you think you're jumping the gun a
little bit with saying bubble because we have not seen yet,
you know, the full ramifications, the full implications of official intelligence.
Speaker 6 (24:01):
Well that's right, but we go back to what we
were saying a moment earlier. You know, isn't the wisdom
of the crowd picking out the potential benefits of these
things early on. You know, why is the market moving
in the way it is. Why does it have this
risk on element when we've had two wars, we've had
issues with China, sluggish growth, a load of risks out there,
(24:23):
and yet the market still continues. There is an underlying
narrative I think from AI that at the moment for
markets is more positive than negative.
Speaker 3 (24:30):
I'm still going back to the guy who stepped out
in front of the Model T with the red flag.
Was he run over or did the car stop? Well?
Speaker 6 (24:38):
I guess when they changed into second gear. When they
found the second gear, then he was in trouble.
Speaker 2 (24:43):
All right, Richard, we'll probably have to leave it there.
Thanks very much for coming into the studios. Always an
interesting conversation. Richard Harris is CEO of Port Shelter Investment Management.
Speaker 3 (24:57):
This has been the Bloomberg Daybreak Asia podcast, bringing you
the stories making news and moving markets in the Asia Pacific.
Visit the Bloomberg Podcast channel on YouTube to get more
episodes of this and other shows from Bloomberg. Subscribe to
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(25:17):
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