Verizon's Frontier Deal and Nvidia Pushes Back | Bloomberg Technology

from the heart of where Innovation money and power Collide in Silicon Valley and Beyond this is Bloomberg technology with Caroline Hyde and Ed L [Music] low live from New York and San Francisco this is Bloomberg technology coming up Verizon agrees to buy Frontier Communications nearly $10 billion in cash to strengthen its fiber Network we speak with the CEO Nvidia pushes back saying it's been in contact with the justice department but has not received a subpoena an HP Enterprise comes up short as disappointing margins offset AI related Tailwinds another chig Z on the show but first let's check in on these markets Ed the NASDAQ outperforms benchmarks are lower with anxi anxious around labor data coming tomorrow but Nvidia and Tesla do the work but there's m&a we have some m&a and that is Verizon to buy Frontier really interesting both stocks lower the offer is $38.50 a share which is a 37% premium to the $284 closing price on Tuesday because you'll remember the reports about this deal started surfacing during the day Tuesday that's Tuesday's closing price $9.6 billion deal value Enterprise Value greater than that if you take into account debt the story car as you know full well it's about being more competitive in the highspeed internet business and Verizon down half percentage Point Frontier currently in the session at $35.10 a share down 9% and we want to be digging into some of the share price reaction that we have indeed been seeing why is Frontier training below that current agreed price and we're very pleased to say we can talk about it a little bit more now because we Welcome to our global TV and radio audiences Verizon agreeing to buy rival Telecom operator Frontier Communications for about $9.6 billion in cash giving an Enterprise value of $20 billion this as the New York phone GI looks to expand its high-speed internet business let's bring in Verizon CEO Hans verberg we welcome you sir and look it wasn't long ago that you actually owned some of these assets why go back into why line why are we seeing this convergence again uh thank you for having me first all I think this is very straight into our core strategy we are sort of in mobility and Broadband serve basically all types of customers in this market consumer snbs large Enterprise and governments uh this is just extending the offerings and optionality for the customers we have so this is a really good uh uh decision by us to to do it an economically right and on top of that as you mentioned yes we we own these assets before but they were in total different type of assets uh there was a basically a copper based business nowadays Frontier is uh more than 50% of the revenue is fiber and more than way more than 50% of the E is coming from fiber so a large transformation have been done uh and it fits in straight to our strategy over rizon Hans good morning it's Ed in San Francisco Frontiers trading at $35 a sharish below the $38.50 per share offer what does that tell you about the Market's reaction to the offer and what you think might happen next I don't tell me so much is so early and is a two hours of trading I think first of all we feel really good about this deal uh from a from uh also from closing it and seeing that this is a possible transaction from many angles because given that we believe it's going to take 18 months and all all the GU regulatory bodies of course will be a thorough job but this is improvements for customers because we're going to give more choice and not only that we're going to bring our Mobility Broadband to these customers at the same time we also have the offerings that we have on our Broadband today which is everything from streaming services other services that we have on insurance Etc so we're going to bring a lot of new opportunities for the custom base of Frontier so I I'm I'm I'm really positive on this acquisition can you tell us a little bit about the future as well the short term is a convergence trade is Wireless wir line content but then there's AI then we're talking about the internet of things as we've been talking about for years hands where does that come into play it come definitely into play in these assets and I said we expect this to take in take 18 months we already right now have a sort of a AI prepared network with a lot of compute and storage at the edge of the network we decided already uh some 6 years ago to fiberized all our transport so we are really prepared of it the frontier asset is just coming in as an extension of that and we can meet even more customers to have processing storage at the edge of the network uh with with the fiberized transport so this is really also another Advantage we're getting with even more Assets in the ground and of course serving consumers with home broadband together with our mobile and home offering is of course a strength in the overall acquisition where we're doing Hans we have a question from an audience member on Bloom Bay technology who notes the 2015 sale of w line assets but I think the question that he and many others have is what's changed around the economics in this deal you said the economics work but give me specifics on what's different particularly for fiber in 2024 so the so if you look at the deal right now at closing we believe that's going to be a creative or growth Revenue growth and IA on day one so that's a really good economics uh and then it's going to take some 12 months and EPs and cash flow will be a creative as well and the reason it takes 12 months is there are some integration costs coming up in the beginning so definitely a very economical uh Sound business for us uh but I said um the assets we sold previously was of course in a totally different standard uh the the frontier team has put in billions and billions of dollar to fiberized the network uh to be the next generation and many of the metrics that they have you know shurn penetration Etc are fairly similar to FiOS and FiOS is of course the best fiber Network in the in the state so there's a lot of similarities on that and that we can offer to our customers Hans some analysts were a little bit surprised by the timing and the fact that you're going all in on convergence now a bold step sus call it because of your leverage and your commitment to reducing reducing your debt why do this now are you worried about leverage no I think first of all we have a very strong balance sheet and as we said this morning at closing this will be maybe 0.2 0.3 notch on our leverage which is very very low we still are committed to our Capital allocation number one invest in the business and that's what we're doing today number two commited to the dividend and you might have seen yesterday we came out with our uh dividend which was for the 18th consecutive year we increased our dividend and then is to pay down our debt uh we are have been paying down our debt since we bought a c band we still have some 18 months here that we're going to continue to pay down the debt so we're going to be in a really good position balance wise uh when when this deal is coming to fruition Hans what opportunity is there for you in data center interconnect DCI in the context of AI look at what like lum's done with Microsoft for example I think that the difference here is that we have so many Assets in the ground when it comes to fiber and Central offices many of these Central offices of course have compute storage power power Etc and many of the AI Solutions when there is a real product they actually need to be way closer to the users uh the corporations uh Etc and that means that because the transport cost and many other things it will be hosted at the edge of the network that's how we built the Verizon intelligent Edge Network in 2018 when we started with the journey which we now is just adding Frontier to it so I see a great opportunity for us on the B2B side with this footprint uh to serve customers uh that want to host AI at close to them secure lower transport cost and Etc you're just announcing one deal and you know we always love to push forward Hans are you going to continue to be acquisitive when it comes to convergence I I think first of all we are really happy with the assets we have and and now we're adding Frontier I don't think we need much more we're going to be the biggest on wireless we're going to be uh clearly the ones having the largest Broadband offering with fixed wir access and fiber in the market uh we have the largest distribution and the customers so we're going to be in a really good position to see that we execute for our customers but also for our shareholders so I'm really happy with the assets we we're going to have and we have today when it comes to convergence I think what is important with convergence we will have the econ the scale of economy for both of it we will have the ownerships for the wireless network and the fiber networks and fixed wireless access if customers want to make the convergence we will have the economics for doing it I don't believe it's going to be sort of you you discount one product for customer taking both that's not really it's two great products and we all know mobility in Broadband is essential for the society I mean everyone needs it if it's a corporation a private person or or a corporation you need these services that are even more important today than were 5 years ago and Verizon is number one in basically every segment of that and this is just fortifying it so yeah we're going to see conver but it's not like we're going to discount products they're great two products that we're going to offer to our customers if they want to join we have a improvements on shurn of course uh if customers both have mobility and Broadband with us and so we're going to see how this plays out in the market but clearly we're going to be best position in the market when it comes to convergence Verizon CEO Hans vestberg thank you very much Nvidia said in a statement it has not received a subpoena from the US Department of Justice responding to a Bloomberg news report published Tuesday that it had the company said it inquired with the doj has not been subpoenaed but is happy to answer Regulators questions Bloomberg reports citing a source that Nvidia did receive a request for information in what's known as a civil investigative demand or CID a CID is also commonly referred to as a subpoena but is often issued before any legal proceedings abroad according to the Bloomberg Source the request for information issued to Nvidia focuses on its acquisition of run Ai and aspects of its chip business Bloomberg first reported the doj's probe of Nvidia in June Caroline coming up Ed will be joined by another chief executive the CEO of C3 aai once again we're talking about artificial intelligence and its latest earnings results this is blo technology [Music] [Applause] [Music] back to Tech earnings now C3 AI reporting subscription revenue for the first quarter it seems to be below many analy expectations shares off by 13% but let's dig into the numbers the CEO is with us Tom seol you join us for more it is a painful sell-off and in fact you're now trading at the lowest since May 2023 I'm sure you'll tell me you don't look at the share price but it's trying to tell you something what is it that wasn't enough in the numbers for the investor today Tom it was a great quarter Caroline I mean year-over-year growth 21% that makes us I think one of the fast 10 fastest growing companies in the public software Universe uh cash up uh transaction volume up I think 121% pilot volume up 115% I think it was a solid quarter this and the U sometimes markets react in funny ways here we have Nvidia growing over they announc growth I think well over 100% year-over your growth rate what's not to like the market reacts by taking what $270 billion off their stock price the next day so you know markets react in funny ways and it'll all sort itself out in the long run Tom I'm still trying to understand the the business model right you have the the subscription part and software and then Services Services seems to be strong what is the story behind software with you it's a well it's a little bit confusing because 70% of that Services Revenue Services number is actually software delivered to the customer as part of our core product that they pay for over a long period of time so it's the core product functionality 70% of the services number like order of $10 million of 13.8 I think but due to uh new accounting regulations that came out called ASC 606 we have to to um we have to treat these functional enhancements as Professional Services but it looks like software it smells like software it is compiled it's part of the core product it is software but under the county regulations it to which we do comply with I assure you it is um we it gets recorded as as Professional Services stripping away accounting what people are trying to peel back is profitability and how long they have to really wait for that profitability to kick in you have to invest the to scale I know but are you just having to tell investors to be patient Tom well let's look at profitability our profit margins on the Professional Services I think is 93% gross margin I mean it's good work if you can get it now our Revenue growth rates are substantially greater than our expense growth rates historically I think going forward our Revenue growth rates will continue to generally be greater than our expens growth rates our gross profit margins are substantially greater than our cost of sales so non-gaap profitability is simply a matter of scale this just happens with time Tom I've been reading through the regulatory filings it's the kind of guy I am and the disclosures and the lawsuit suits against NL it seems to center around a trade secret issue but but can you help us understand more of what's going on there please yes this is a very unfortunate situation this is very sad uh anel was a a really valued customer uh that licensed a lot of our technology and it appears uh that they may have copied literally thousands of lines of our of our source code into of our of our source code into a copy of and and basically copied our product so that's what this complaint about appears to be a very significant kind of intellectual property um uh theft and uh we're we're pursuing that in civil courts in Italy and it's sad and um you know it's actually the first time I've seen this in my professional career uh that that a company would do such a thing but we are you know we have to protect our intellectual property rights for the benefit of our shareholders and we are doing that and we will seek comment from NL you are seeking $2 billion from them in compensation Tom just going back to ultimately the winning of clients how market share how are you able to compete with the big companies out there trying to compete with you well I think the companies that are perceived of as accounting with competing with us would be would be Microsoft with aour AWS and Google because the real competition is building yourself but understand Caroline 71% of our transactions the last quarter we closed with one of Google Cloud AWS orur so we joint Market with them we joint sell with 71% so these are these are great marketing partners and they're perceived of by some as being competitors but they they sure look to me like partners and they look to our customers like Partners so uh we we appreciate the partnership and we go to market with them very actively all around the world Well for now we really appreciate you coming on after your earnings shares off on the day we appreciate the time and the expertise C3 AI CEO Tom seil [Applause] [Music] HP now it's coming out with its earnings and for some we saw profitability perhaps coming weaker than expected for its third quarter suggesting look that lower margins certainly that anticipated in its business for selling servers for AI seem to be holding for now HP CEO Antonio ner is joining us and let's just dwell on the margins for a moment Antonio because some call it low calorie nature of AI systems Revenue is it low calorie for the foreseeable well good morning car thanks for having me we did what we said would do and we had a very strong quarter where we had double digits year over-year Revenue growth and to your point was all on the back of converting an amazing order book we have in Ai and continue to add to that order book however is also fair to to say that we actually improve operative margins quarter over quarter by 50 basis points despite that makes heavily weighted to Ai and I will say that the reason why the gross margin not the operative margins the gross margin is year over-year down is because we have less contribution from the networking business which as you know is going through a market transition uh through the cyclicality we normally see in each of the businesses so the main driver for the gross margin decline was not AI in fact our AI business our server business grew operative margins year-over year by 70 basis points that's actually like an industrywide issue that that you've brought up that others have talked to us about I think the difference with you Antonio is the customer base is like much more Enterprise Centric and I think on the call you talked about Improvement in margins relating to that could you just talk a bit more about how the Enterprise customer is going to push you forward absolutely and as you know at HP discovered in Vegas we introduce an HP private Cloud AI offering which I call it an AI in the Box head which is actually a four turn key solution for Enterprises of all sizes to train and deploy inference for their specific applications and and that offer is targeted specifically for Enterprises including very specific vertical Solutions built on top and we just made that offer available just two days ago it's now available for Global availability ordering and we are excited about that now in the order book we announced this quarter we had $1.6 billion of new orders and M teens of those orders are Enterprise related let's just talk about macro challenges to those Enterprises you sell to are we seeing a pullback in confidence on spending actually I have not seen it um you know in fact we saw orders growth in all our businesses on a sequential basis which tells me caraline we are on a recovery in fact our traditional server business had double digit year-over-year and sequential growth in orders which also tells me there is no cannibalization from the AI servers into the traditional servers and it makes sense Caroline because when you think about these Legacy World loads some of them are not even you know Cloud native World loads it makes no sense to put it on a more expensive infrastructure which should be focused on really training these models with their data so they can get the time to Value from the the deployment through the business process and then on the networking side which obviously has been a more negative story in the last few quarters in line with the peers by the way we saw sequential order growth across all geographies and it were we're driven by the wireless landine um The Sassy deployment which obvious security is very important on the edge and data center networking Antonio you talked about your fiduciary duty in in pursuing damages in the sad incidents around Mr Lynch just because this is the first time your our audience is hearing from you you know explain that fiduciary duty and basically what your end goal is in that piece of of litigation well lessen had the the Dr Lynch death is a tragedy as are the death of others in the on the ship so clearly is a it was a sad moment however it doesn't not change what happen you know the UK judge ruled that the company is victim of fraud they ruling happened last year and as a phys duty we need to see the the finalization those the proceedings and and obviously our duty is to also to record the damages on that fraud so we have to see it through that's what we are and uh we hope to hear soon what are the next steps based on the procceedings of the judge Antonio ner We Appreciate You tackling what is a sensitive subject and indeed your earnings thank you [Applause] [Music] welcome back to Bloomberg technology I'm Caroline Hy in New York and I'm Ed llo in San Francisco quick check on these markets Ed because we are being whip sword once again yesterday we saw an eek out of a recovery on the chip sector but today we've gone back in the red and it's going to be a volatile session as we looked ahead tomorrow of course for the all important labor data NASDAQ 100 under pressure as you see by 51% no longer outperforming the other benchmarks we see the chip stocks down by more than a percentage point and also looking at crypto look this is a risk ofers kind of a day once again bonds have been trading pretty flat but I'm looking at crypto sinking some 3.6% move on and look at some individual movers because am mid what has been a volatile time on the stock markets companies still have well the ability to splash some cash and more than $9 billion of it coming from Verizon to be buying Frontier we just spoke to the CEO and why he's doing that deal Nvidia still managing just to be above water but remember this is a key stockers to what's Driven some of the selloff and mag 7 not doing enough today to stabilize the benchmarks Nvidia up by just a tenth of a percent it has still up more than 3.8% this is it seems to be promising full self-driving Europe China and of course all eyes on what will become of a robo taxi conversation in October for that company but we got to stick with overall outlook for chips right now Ed we do tsmc supplier scient says AI demand is here to stay the CEO dismissing concerns over AI fatigue after chip stocks recorded the biggest one month one day decline in a month Bloomberg sat down with CEO huming Chi is what he had to say from my personal perspective this booming of AI industry just begin there's a lot of application I do expect will coming out pretty soon for more on the markets and everything going on Christina Hooper Invesco Chief Global Market strategist joins us now you know we're learning every week every month every year that one single session a market does not make but where do you go the anxiety and semiconductors AI demand we have economic data in 24 hours time that's very important and we're always thinking about the FED when you wake up Christina with a technology investors perspective what do you first think of first of all I think it's important for investors to recognize that they have a longer time Horizon than one day or one month or even several months and so it's important not to be too reactive to understand that valuations are relatively high and so when stocks are priced near Perfection we're likely to see Jitters we're likely to see concerns and I think one of the overarching concerns we're seeing right now is this fear that it can't continue that we won't see companies continue to spend to invest on AI and I think that that's probably more more a fear than a reality because what we're seeing is that investment in productivity and enhancing um areas has actually improved productivity growth and so this is something that companies recognize and I truly believe the risk of not investing is greater than the risk of investing but that might not calm investors today uh so diversification certainly helps but I think just understanding we're likely to see volatility but that doesn't mean we won't see significant gains over the course of a year 2 years and even longer Nvidia back in the red once again and has erased a lot of its market capitalization Christina there has been an anxiety that we've just put too much into too fewer companies when you say diversify what into other Tech names or just other types of companies other types of companies let's face it that if all goes well if the thesis for a soft Landing holds um and we see the FED start to cut rates that could create a very supportive environment for risk Assets in general that doesn't mean that Tech will outperform but it's probably going to keep up or follow closely behind cyclicals smaller caps those areas that are more sensitive to the economy uh so this could be a very positive environment and I think one that investors will appreciate even if we see some spasms um some fits of fear and lack of confidence along the way Christina you talked about sort of durations a moment ago weeks months years and in in the context of Nvidia for example a lot of the investors we had in the show after earnings were long-term investors who say we accept the short-term volatility but we're holding because we understand the data center buildout that's happening is it important to be Diversified though even if you take that mindset so you know I think it's it's critical to recognize that there are many many companies that will benefit from AI so if you're you're feeling you very confident about the AI story that's going to help companies in a variety of different sectors and industries and in fact we've heard on earnings calls in the last quarter that companies have been using AI already and seeing some really significant results in terms of of their sales and so I think it's it's perhaps taking that ai ai theme and looking to those other sectors and industries especially service areas of the economy uh to find Opportunities there can be a significant diversification by just doing that Christina how important is tomorrow's jobs report I'm sorry how important is Friday's jobs report so Friday's jobs report I think what we we're likely to see is job gains non-farm payrolls around 150 160 in line with expectations and that's appropriate given where we are in the cycle I think the FED will be satisfied with that I mean it certainly said it doesn't want to see any significant deterioration in jobs from here I don't think we'd see that and that's pretty much a prepandemic trend level is to get about 15 50 160 170 I don't think there's anything that will come out of Friday's jobs report that changes the fed's decision in September I think we're going to get a 25 basis point rate cut I think if we get a weak jobs report that will not change that I don't think we're going to get a 50 basis point cut that's because the FED really does believe um that it is doing the right thing it's on course a 50 basis point cut would be an admission of guilt in my opinion even when it was behind the curve and March of 2022 it only hyp rates 25 basis points so that's how I think this is going to play out and that should be positive for markets if we got a 50 basis point cut we might actually see more volatility and and some kind of selloff uh because it suggests there's more weakness in the economy than many thought Deja Vu Now versus beginning of August are we going to get these bouts of volatility as aggressive as we're suddenly seeing I suspect we will there's a lot happening right now we not just have the FED meeting but we have a presidential election we have a lot of other central banks cutting at the same time I think that creates an environment where there's concern where there's uncertainty we also have this dueling concern among investors where they're looking to rate cuts and the opportunities presented by them but they're also still worried there's this nagging concern that we could still go into recession and so I think that all comes together in terms of outsize reactions to economic data releases as well Christina so great to get the macro perspective Christina Hooper Chief Global Market strategist and Invesco now coming up open AI it crosses 1 million customer Milestone from an Enterprise perspective more details on the company growth next this is blue b technology [Music] [Applause] [Music] Bloomberg Power Players is underway in New York as Bloomberg Originals Jason Kelly is sitting down today with prominent people in the sports industry he's discussing the global Sports boom right now with Tony westler chairman of Aries management and of the Atlanta Hawks listen to this never really held me up on that and probably should the truth of the matter is uh many of these uh as Grant actually mentioned a lot of these businesses and industries um and certainly leagues and teams have gone through this massive Evolution um and and at the end of the day it takes a long time for leagues and franchises to make money to show the valuation that that the market is now seeing um and yes uh your point earlier this is an asset class uh we at Aries would argue I don't know two and a half three trillion dollar asset class and people take a step back and say well what are you even saying uh if you think think about the NFL there's 32 franchises average franchis is maybe 5 or6 billion do so 15060 billion 180 billion uh of value in just franchises and each of those franchises has all sorts of ancillary businesses from stadiums to real estate developments uh technology related businesses uh retail and and food and beverage related businesses so when people say uh what is the size of this industry I I would argue at least most folks looking at it are woefully underestimating the value of this Sports World globally yeah uh so when people take a step back and say wow um this is a really meaningful asset class and frankly it's an asset class that's not just for rich people yeah it's an asset class for investors trying to uh now investors that hopefully do real work and understand the difference some leagues are really nass and really early in their in their uh Journey if you will um and some leagues are are really comfortably seeing each of their franchises make meaningful cash flow so there is analysis required but the size and scope and excitement of this industry is a little bit greater than most folks might have anticipated yeah and there's so much to unpack in in what you just said but before we get too far from valuations I want to put a poll up um if we can because we want to ask the audience what they think about uh I think us sport us sports teams valuation so this is sort of a Goldilocks question are they too low just right too high or Skyhigh and ridiculous um I might wait to see what the audience says before I ask you um if they agree but you know we we've shown up on the screen here I mean these are it's not quite and you know to use the tired old term hockey stick but it's pretty close when you look at NBA value ations you know your um your friends in Los Angeles you know Willow Bay and Bob Iger just bought the nwsl team as was mentioned uh out there Angel City for $250 million valuation M that's that's real money uh for women's soccer all right so here's what the audience says just right takes it with 39% and growing 40% too high Scot had ridiculous and they're not too low so it it it seems like the audiences agree with you how how do you how does this play out in the near and Midterm and how do you as an investor think about it well firstly it's so hard at least in my mind uh to answer a question like that because each of the leagues and each of the franchises have enormous uh uh differences in what they're doing uh those teams that really have a global or the ability to have a global following uh those uh leagues and those sports that actually incorporate or expect to incorporate sports betting and therefore increasing the the obsession of young people into their sport have advantages uh those that have uh really a huge amounts of of cache and stars that can attract Global media rights uh these are things that distinguish I think uh the long-term winners versus uh there may not be as many losers as people might argue uh but there'll be some there'll be some that aren't extraordinary and that aren't Global and phenomenally valuable sports and sports franchises so I kind of go by sport yeah um and yes I I do believe at the end of the day Global media rights is something that uh that you have to Aspire to yeah um and yes I'm being a little partial to to the NBA or but but there are uh so many uh additional ancillary values that come from a global following right right uh so to me sports are not uh a single entity um and one of the things we would argue is understanding uh the benefits uh and detriment of not just the sport but of the market that they play in yes and of the league that they operate in and uh I don't want to disparage a certain City versus another but uh if you're the 30th largest metro in America right versus the first second or third or even the top 10 dramatic difference um so uh again that that too is awfully relevant not just the league and the sport well and it's interesting so so let's talk about that in a little more depth because we leave it there Tony wrestler chairman of areas management and of the Atlanta Hawks along with our own Bloomberg Originals Jason [Music] [Applause] [Music] Kelly open AI hit a new mil Stone reaching 1 million paid users for the corporate version of chat GPT that's up from around 100,000 the company told us about here on the show in April for more let's bring in Bloomberg's Rachel Mets who's leading the AI coverage and the point I think is 1 million Enterprise or corporate or business customers that's where the money is potentially at for open AI absolutely and this much growth in a short period of time really indicates that despite having plenty of competitors and businesses having to think more and more about hey are we really getting a return on our investments in they are still bringing in users um it's really quite a lot of growth it's a what like 67% growth in over that period of time and they only started selling their um the Enterprise version of chat GPT uh about a year ago exactly meanwhile it's looking to raise funds we understand at a head valuation and talking of competitors anthropic is just rolled out it's clawed Enterprise how Fierce is the fight for business users right now it's pretty Fierce I mean you certainly have a bunch of companies that are interested in spending on this stuff but as I mentioned there's more and more pressure to show what you're getting from this and though the companies might have um I think open AI um has done some customer surveys and anthropic perhaps has done similarly that show that their customers are liking this stuff and getting uh productivity gains perhaps from it using it for different kinds of tasks it's still I think for a lot of buiness business is really hard for them to tell what could you use it for and will it actually be helpful we know that these things may make things up and if you have to check a lot of the results that you're getting from these systems is that really all that helpful to you it it remains to be seen I think for a lot of businesses if this will help them Rachel Mets we thank you all things those chat Bots but now let's just go back to some of the infrastructure needed we preview broom set to release earnings after the closing bell today BL intelligence saying that the company is poised for another strong third quarter following growth in AI sales and vmware's contribution kin saani is with us from BL intelligence you authored this note so the Tailwinds can outstrip some lagging soft areas in the chip Market exactly I mean the AI uh in the semis is likely to offset its cyclical heads in its Legacy businesses uh we we we think in its Legacy businesses the Enterprise uh Wireless and server storage likely to have hit some bottom albe the recoveries would more be moderate but the key grow driver in this quarter in the next quarter is going to come from the software specifically the VMware revenues broadcom's just like become a really big chip company $700 billion market cap it's important in data centers right I always think about it in the these kind of two prongs networking data center infrastructure stuff but also custom ASX explain the custom Asic bit what they do and what we might hear yeah so whenever we've talked about Nvidia and right the key threat to n is its customers designing their own chips well Google TPU for example yes Google TPU for example they do need a design partner a semiconductor company which has experience and the IP set to build this chips so that's where broadcom comes in it's one of the it has the largest Shar when it comes to designing custom as6 or accelerators in Li of the gpus namely Google meta and the key thing going into this earnings for investors will be do they announce a new customer which news have been saying like to be open Ai and if they upside their AI Revenue guidance for the full year which we think they will in the range of$ 500 million to a billion dollars the anxiety Ken is that right now the revenue growth is strong we're expecting 47% increase but it dials down quite quickly into fiscal 25 26 how committed is this AI spend I mean so if you look at there two key sources of revenue one being uh connectivity which is really ethernet in the AI clusters and the backend Ai and the frontend AI and the custom um A6 both of these markets have just started their beginning ramp both of these have forecasted to grow significantly for at least the next 3 to 5 years and like I said broadcom being the dominant in both of these areas we expect these sources of revenue for broadcom to still continue significantly however at this point broadcom is like a conglomerate it has a lot of other Legacy semiconductor businesses and soft Ware businesses so those do weigh the strong AI ramp that we talked about well you forget we used to talk about broadcom in the context of smartphones namly Apple I will be going to Apple Park on Monday that business is it still relevant what are they doing it's still relevant it's still a significant sizable business uh we don't expect any key high growth Catalyst there because their business has been very sticky with apple right they do increase their asps and grow margins slowly every year there might be some options of some small content gains but nothing nothing very sexy but still a very high free cash flow generating business we think also of how chips perform after smashing earnings expectations kjin you were a f fundamentals guy but how we positioned into this set of earnings yeah broadcom doesn't really is known for very massive beat and raises however like I said if they do address a couple of the points a new customer AC customer announcement B upside to their AI revenues and VMware faster integration update I think that would be a significant positive for the stock reaction post earnings saani so great to have you on the show BL me intelligence we thank you now that does it for this edition of blue technology tomorrow interesting interview with joined by the weo co CEO Teedra maakana an exclusive interview and there's been a lot of news around wayo of late a lot going on today's show as well uh it was a short week with a lot in it don't forget to recap on the podcast so you know exactly where to find the Bloomberg Tech podcast from SF in New York this is Bloomberg technology [Music]