GE to Buy Consolidated Precision Products for $11.75 Billion

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1:22I came to remember the last time GE made a major acquisition. I've spent the last 20 years hearing about all the stuff that they're divesting. Good point. Here's GE buying it. George, talk to us about this deal. What's GE doing here? Yeah, they have, like you said, largely been divesting and turning themselves into a cure plate era. This looks to me like GE is going out and buying into their supply chain. My guess is they're looking for obstacles to building more engines and more engine parts because everybody's having a problem right now getting the throughput they want. And look, I think it probably sets GE up for the potential maybe even to take more share on this generation of gen engines. So one of the big challenges right now for the air framer's Boeing and Airbus, especially Airbus is getting enough engines to build aircraft and deliver to customers. Both of them have backlogs that are about a decade long,

2:22definitely drive well into the 2030s because it's not a sequential backlog. But Airbus keeps asking RTX to give them more engines so they can make more new aircraft. RTX keeps paying that off right now because they're in the midst of trying to fix their problems with their gear turbofan engine. This could give GE the opportunity to build more leaps, which is their next generation engine, deliver into Airbus potentially which wants to go to 75 a month for the A320 and take even more share in this and the current cycle of the aircraft business. Okay, I also have to get used to the fact that GE is actually GE Aerospace, which kind of requires me to rewire my brain a little bit. But GE Aerospace to fund this deal with $7 billion in cash, the remainder in new debt. You mentioned that it's solidifying its supply chain. Does that mean that regulators might jump in and look at this with some skepticism? Look, I think regulators will absolutely look at it.

3:29I can't tell you what the supply chain for precision casters look like. But what we hear from GE is a product company. What we hear from GE is they are supplier to the industry. So I'm almost certain they're going to see some judicial oversight or not. There's too much concentration there. I had the DES function on the Bloomberg thermal for consolidated precision products. They manufacture precision metal castings for the Aerospace Defense and power generation industries. That seems like right up Georgia's alley manufacturing aerospace. And they're located in the city of industry, California. I don't know where that is. Southern California. I believe so. Southern California. Okay. Yeah. Southern. So George, while we've got you on the horn here, Boeing, I got to ask, I mean, where are we on deliveries of 737s? That's all I know about the Boeing story. I'm sticking with that strategy. Tell me what the delivery situation looks like for the 737. Well, so I've, the time's been busy morning here in aerospace, right? Airbus reported their

4:32deliveries yesterday. So they tried to sneak them in and labor day. And they were a bit weakened Boeing just announced something as we were going on here. So honestly, I have not, I'm not seeing it. I'll tell you that Boeing has been doing better than Airbus. We looked at Airbus August numbers. Airbus is going to have to build 75, 8, 320s per month till the end of the year to get to their guidance for 8, 320s. They've never done that. That before, months sequentially. Again, Boeing's been having a better time at it, but Boeing's coming from, you know, from the easier end of the curve, I'd say, because they're not sort of approaching those, but pushing the levels they were delivering prior to the pandemics. But we'll be on Boeing here in a minute. It's been kind of a, it's been a busy aerospace. Exactly. Well, I'll give you the Bloomberg News reporting Boeing delivered 51 commercial aircraft in August. It's lowest number in four months as output of the wide body 787 Dreamliner drop. Portally from me, because I'd listen to you and I read your research, the 737 type aircraft, they delivered 42. So there you go. So everybody's

5:37repeating their deliveries, which isn't bad. 47 is what their target is in its August, right? Yeah. So we know August is light, but the question is what's the set up for the end of the year? We'll be looking at that shortly. Stay with us more from Bloomberg Intelligence coming up after this. Our hometown is not a test tube. 90 miles northeast of Nashville, a battle for the future of America, plays out in one small town. Developers with right wing ties have purchased hundreds of acres of land. We need cities on a shining hill. This is our town. A podcast about what happens when a small town becomes the site of a social experiment and fights back. I guess you didn't move in on a bunch of dumb hillbillies now, did you? Listen to our town on the iHeart Radio app Apple podcasts or wherever you get your podcasts. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg

6:40Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's turn back to the tech sector because we can't stray too far away from it. There have been a couple of deals, an actual deal and then a non-deal this morning in the tech sector. You have Qualcomm making a deal with Amazon, but then you also have Anthropic walking away from a purchase. So we had to bring in Mandy Psiang. He is our global head of tech research here at Bloomberg Intelligence. Mandy, let's start with Anthropic. Our reporting shows that it has decided to walk away from a $6 billion purchase of DeCarte AI, which is an AI startup. What does that say about what Anthropic wants to do or can do before it goes public? Well, right now, we've seen these companies are super active and it comes to just partnerships and any deals and video hugging phase was a big deal last weekend. To my mind, Anthropic really has a lot going right for them and it is about plugging whatever gaps they have. In this case, this company

7:46does chip optimization and we know Anthropic has the most premium tokens in the market. So when it comes to the token pricing, they are able to charge a premium and if they are able to optimize the infrastructure that they run on, that makes sense. But obviously, they didn't agree on something. We don't know what it was. I don't think it would be the price given and Anthropic really has the deep pockets now to make any acquisition. So it was something, I think, more strategic in terms of aligning and this company did get an offer from Nvidia, DeCarte and they turned down the offer. But to my mind, Anthropic has done everything organically and looked at the best coding agents so they could code anything if they wanted to. Are we expecting them to come public and when? It could be as soon as this week again. I don't know the exact details on when they will file the S1 but there are rumors. It could be as soon as this week or next.

8:48All right. So here's a Qualcomm deal. They're the largest maker of smartphone processors. Qualcomm is. They signed up at Amazon.com as a data center chip customer. That's good news, I think, for Qualcomm. But what's even better, they gave Amazon the right to acquire as much as $4 billion in shares. What's going on there? Is this another one of your circular deals, Mandy, if that I'm worried about? Well, I mean, look at this point of time, all the chip companies, especially the ones that are not Nvidia. So AMD ended up doing a similar warren structure with OpenAI and Meta. And I'm not surprised Qualcomm being the new player on the block when it comes to the data center market, which is, you know, in trillions of dollars and everyone knows that. So Qualcomm being a more consumer device centric chip player wants to expand in data center and what better way to do it than you know, partner with Amazon. And they had to give Amazon some incentive. So in this case, it was the warrant. I mean, there's existing shareholders may complain and say, you know, why are they

9:50diluting the existing shareholders? But to my mind, strategically, it makes a ton of sense and it qualcomm's skin in the game. And it comes to this large data center market. And investors seem to agree because there's no fear of dilution showing up in the share price today. Qualcomm is up about 5% in trading. Amazon, obviously, not putting all its chips with Qualcomm, right? I mean, it's spreading out. It's not risk, but it's definitely relying on a number of different suppliers. Yeah, and they make their own chips. So right now, the real limiting factor is the fab capacity. So what kind of TSMC allocation can you get? So Amazon has its own allocation. Nvidia has prepaid for 70% plus of TSMC's capacity for the foreseeable future. So how do you make more chips? You got to partner with whoever is remaining. So it's your Qualcomm's, your AMD's and you know, whoever is remaining there. Stay with us more from Bloomberg Intelligence coming up after this. Our hometown is not a test tube. 90 miles northeast of Nashville, a battle for the

10:56future of America plays out in one small town. Developers with right wing ties have purchased hundreds of acres of land. We need cities on a shining hill. This is our town. A podcast about what happens when a small town becomes the site of a social experiment and fights back. I guess you didn't move in on a bunch of dumb hillbillies now, did you? Listen to our town on the iHeart Radio app Apple podcasts or wherever you get your podcasts. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Our tech team, research team and Bloomberg Intelligence, which man deep seeing in honor, agrona. It keeps growing. Yeah, thankfully we get some new voices. I'm sick of tired of talking to those guys. I mean, they're pretty good and all, but I want some new voices. I mean, perspective. Yeah, Derek Mogul joins us here. He's a technology analyst for Bloomberg Intelligence.

11:59I recently joined the team. Appreciate it. Talk to us about AI storage. Are your companies are they writing this AI wave? So how are they? How are they doing that? Oh, well, they are. So with AI, inference is actually driving storage from a passive capacity to more active extension of memory. So there's an it's creating an enormous amount of active data, but this data has to be accessed repeatedly and concurrently. So basically what's going on is that's overwhelming DRM and HBM. What's HBM? High bandwidth memory. Yeah, okay. Yeah, so it's overwhelming these memory sources. And it's actually flowing into other layers of storage. So this is creating a huge demand. And it's it's creating what we call a memory in storage hierarchy. So you have HBM and DRM at the top of the pyramid. And then as data flows down, it flows down into flash and then it flows down to HDD. So it's it's reinvigorating the storage industry for sure. Yeah, it seems like any company that it's modestly involved in memory chips has just, you know, the stock has gone haywire over

13:00the last couple of months. You do a lot of work on this or modeling points to almost five times growth and storage spending by 2030. And all of that is just part of the whole build out of AI infrastructure. Yeah, that's exactly right. So it's really it really comes down to more data being created by AI and the data being costing more to store. So we do model about 25% keg or an underlying bit demand growth through 2030. And this is really based on the supplier guidance and I mean, we've all heard about these LTAs. LTAs are now spanning out to the 20s. A lot of agreements. A lot of agreements. A lot of agreements. Sorry. Yep. And then compounding that is ASPs. So storage has historically been a deflationary industry. Yeah. We're seeing price increases for the first time in decades. So if you add two and two together, yeah, that's five X increase in the storage 10. All right. Let's be honest. You were you were born on third base. You thought you hit a triple. Look at some of these names on your list. C.G. technology. Western digital micron. These things are up like 100 200 percent this year. Like flashback to the 90s. Yeah. I mean, so what's going on with these

14:02names are people just trying to are they just sensing that there's going to be demand for these products. Yeah. Like really for like next several years. I mean, these guys are guiding as such. I mean, they're guiding sustained bit demand into the 2030s. And they're talking about LTAs going out. I mean, Western digital, I believe talked about LTAs out to 2032. So this is so as an analyst's investor, you have some visibility on revenue, right? Yeah. I mean, it's up massively, especially on the flash side. I mean, ASPs in in in flash are up three to four X this year alone. That compounds upon 20 25 percent bit growth. I mean, that that I mean, those are enormous numbers. So for a company like Western Digital, trading at 36 times earnings. I mean, this like you said, once upon a time was a very cyclical company. And the products that made were, you know, they just kind of went down in price. Overall, is that expensive for Western Digital 36 times earnings? It is expensive. But again, the company is now guiding to 25 percent demand bit growth through 2030. 10 10 points of that I estimate is from AI alone. So they do get some upside from the AI.

15:07Oh, just a question. Yeah. Seagate. Seagate trading at 59 times reported earnings. But you look to the forward earnings at that multiple is cut in half 25 times. So again, like we saw within video, these companies are earning their way into their multiples. So it's just amazing. Is your business like one of the first things I learned about your business or just the hardware side of tech is it's cyclical. And you got to get the cycle right. Is it still cyclical? What do you say? I mean, that's a great question. So the way I see it is storage industry has bifurcated into the legacy cyclical industry. So it's cell phone storage, PC storage. That's the ride's the normal cycle. It's like high highs and low lows. But I would say on the AI side, it seems like it's more sustained. It's less cyclical. Of course, it could crash at some point. But for the time being, I mean, we're seeing long-term demand and sustained demand. Okay. What could cause it to crash? Well, I mean, number one, I mean, this can cause the whole market to crash. It's a hypercaler's, hyper scaler stop spending. I mean, that's the bottom one.

16:08We haven't seen or hurt any of that heavily. No, there's no inkling of that at the current moment. I mean, if you think about it, are we going to are we going to use less and less AI? Are you going to use Chachi PT less? No, I mean, you're going to continue to use it. And I think it'll continue to proliferate enterprises are using it more and more. Clawed. So I mean, over time, I think you can make a strong case that demand will hold up. So for these storage companies that are seeing so much more demand, will they need to spend more as well in order to meet this demand? Yeah, that's a great question. So there's on the flash side, they are increasing capacity. They, I mean, prices are up three to four X just due to the insufficiency of supply. So they are ramping new facilities and they should come online in the 20, 20, through 20, 30 timeframe. And of course, they're spending massive amounts of CapEx on that. The HDD players are taking a more measured approach. So they're not actually increasing supply through increasing manufacturing capacity. But what they're doing is just increasing the aerial density of the the platters that are spinning disc platters in their HDDs. Stay with us more from Bloomberg Intelligence coming up

17:11after this. Our hometown is not a test tube. 90 miles northeast of Nashville, a battle for the future of America plays out in one small town. Developers with right wing ties have purchased hundreds of acres of land. We need cities on a shining hill. This is our town. A podcast about what happens when a small town becomes the site of a social experiment and fights back. I guess you didn't move in on a bunch of dumb hillbillies now, did you? Listen to our town on the iHeart Radio app Apple podcasts or wherever you get your podcasts. You're listening to the Bloomberg Intelligence podcast. Catch us live week days at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Here's the first story I read when I got in the cart for 40 a.m. this morning. It's about millennium. The big hedge fund. I thought they were big. I had no idea how big is he and his folks are there at millennium. Nearing 100

18:18billion dollars in assets under management. Just blew me away. That's the subject of our big take story on the Bloomberg Trouble. You know, we love the big take stories. It got a green B, which I think is important for the reporters on the story. I like to call that out. Hemmab Palmer joins us here. She co-wrote this with Katherine Burton. Hemmab talked to us about millennium management. One of the biggest, or I think the biggest hedge fund out there in the world. What did you reporting discover? It's big. It's huge. It's it's swelled in size as the industry has as well. And now they're at $97 billion making it the world's second biggest hedge fund. They're close to topping $100 billion soon enough. There's no plans to slow down. He's raising $22 billion on top of that. He's planning to potentially in talks to raise another $3 billion for an electric credit fund. There's a lot happening soon enough. Within a few years, it wouldn't be a surprise for millennium to run more than $130 billion. It's extraordinary. I mean, a lot of managers will tell you, I'm

19:18capnestized of my book because I can't generate the returns with more capital. There's only so many names out there. How does Mr. Englander known on the street as Izzy? How does he kind of deal with that? I actually set up his firm. Yes. So this idea of being capacity constrained, where you get so big that it now impedes returns. This has been felt a number of hedge funds. It's something that we see across the space. A lot of other multi-strats have either kept their size or some firms have given money back. Bridgewater, which was the world's biggest hedge fund for a long time, they had their performance curbed because they grew too big and had to shrink their pure alpha fund so that it can get back on track. What Izzy's done with his firm is a managed to avoid this capacity constrained problem. The way he's done that is by having his fund do so many different types of strategies by spawning this movement to invest in outside hedge funds. Now they invest a hedge fund investing

20:21in another hedge fund. Now they're even plugging in full businesses like Bobby James Jane Capital, which has seven business lines and 400 staff of its own to really spread out all the investments across different things. And so they've built this kind of new more complicated model to be market neutral but to have a ton of money and a ton of things invested across all these little little siloed pods that trade independently. Wow. Now Izzy England or the founder of this firm, he's 77 years old. Has he discussed succession planning at all? Yes. So the firm recently, I think last year or so sold an equity stake. It was the first time that Izzy had given up some of his equity stake. He was basically a full owner of the firm and sold about 15% of it. This was part one of many things the firm has done to be more institutional so that when Izzy steps back or as he ages, the firm can still continue and we see that through the creation of an office of

21:25the CIO, which as this group, they make decisions for the firm. And you see that the firm in general is no longer a smaller pod shop, right? They are this now big institution in the industry. You see that with the size, you see that with the way the firm is one. You see that with the new things they're doing. And so the firm should live on beyond Izzy's participation in the firm and that's the whole goal that it sustains. You know, back in my day, so let's call it late 90s, early 2000s, wasn't that uncommon for somebody to have a good three, four year run on the city currency desk or the Morgan Stanley Bond desk and go out and raise a billionaire too and start throwing hedge fund? Does that still happen in a world where millennium has 100 billion in assets under management? It's a lot harder. I mean, it's been hard to launch a hedge fund for years. And you see some people like Bobby Jane raised five billion for his hedge fund, even he had his own struggles. What you're seeing now is a PM have to think about, do I start my own firm, have my name on the shop,

22:29raise money independently and try to make it? Or do I now take this other door, which is potentially allow myself to take money from millennium, be an external pod? In some cases, you do get your own name on the door, right? And you do are allowed to take on outside capital, outside capital as well. Really? Sometimes millennium will demand exclusivity. And then you are faced with those same risk constraints that is these famous for. One of the greatest business models on global Wall Street is two and 20. You get two percent fee on assets under management. You get 20 percent of the upside. If I do the math for Mr. England or 100 million, 100 billion dollars, that's two billion dollars a year of just management fees. That is extraordinary. It's extraordinary. And then when you think about multishwats, they have pass-through fees. So they make the investor, the LP, pay for basically the cost of running the firm. It could be the terminal cost, the PM salaries, which are so expensive, the costs of desks and chairs and tables, printer paper. You can really pass

23:36through so many of those expenses onto the investor. And look, investors really care about the net return. So Izzy has a track record of producing annual returns of at least 10 percent. And that's what the goal is. But the expenses on top of that are pretty incredible. The 10 percent return typically is net of fees. So they would have had to have done 20 percent or more. This is the Bloomberg Intelligence Podcast available on Apple, Spotify and anywhere else you get your podcasts. Listen live each weekday 10 a.m. to newneasternonbloomberg.com, the iHeartRadio app, tune in and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal. Follow the money in the world of sports every week on the Bloomberg Business Sports Podcast. Hello, I'm Randall Williams, joined Michael Barber, NASA, PradoMal Maglion and me as we take you

24:38inside the deal's decisions and innovations that power this multi-billion dollar industry. Plus, we'll speak with executives, athletes and visionaries that are transforming sports across the globe. Subscribe to the Bloomberg Business Sports Podcast on Apple, Spotify or anywhere you listen.