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This is Bloomberg day Break Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world. Straight Ahead on the program, a look ahead to US retail sales and what the numbers might reveal about the health of the consumer. I'm Tom Busby in New York.
I'm Karlin Hepge here in London, where the ECB looks likely to cut rates again face with a weak economic fact job in the continent's biggest economies.
I'm Brian Curtisy in Hong Kong. We look ahead to whether China is all in on stimulus or wavering, and we preview TSMC's earnings.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg E Love Them Free Ow New York, Bloombergen ninety nine to one, Washington, DC, Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, Sirius XM one twenty one, and around the world on Bloomberg Radio dot Com and via the Bloomberg Business App.
Good day to you.
I'm Tom Busby, and we begin today's program with some key economic data out this week. US retail sales for September eight thirty am Wall Street Time on Thursday. So what will the numbers reveal about the health of the consumer and as we head toward the holiday season? Is stubbornly high inflation keeping a lid on spending for a lot of Americans. Well for more, we're joined by Michael McKee,
Bloomberg International Economics and Policy correspondent. Well, Michael, retail sales rose just a tenth of a percent in August, but that was better than forecast. What are you expecting to see in September.
Well, what e kindom is surveyed by Bloomberger expecting to see is more progress in that regard. The forecast is for a two tenths advanced month over month X autos just a tenth, but the control group, which is basically what goes into GDP up three tenths is last month, which would be a fairly strong performance. Americans still are shopping. We haven't seen a major impact on confidence in the fact that they can pay for these things. So at this point we're expecting to see some strong growth.
Well, let's talk about why we have that strong growth. We have a very solid labor market, surprisingly strong numbers the last month. Higher incomes as well. We've seen gas prices low this past summer, still pretty low. Inflation has eased, and it won't have much of an impact on the sales data that we'll see this week. But lower interest rates right, all.
That right definitely won't have an impact on the data we see this week. Credit Card rates have not come down. I don't think anybody be surprised by that. They're very sticky. They go off a lot faster than they come down, so Americans are still paying that. But what we're looking at is the higher wages people are getting is helping because people tend to spend what they make and make
their spending decisions on what they make. They've had a lot of money in savings for a while, and the savings rate was revised higher, But it's the wages and salaries that sort of determine the momentum that we see in spending, and since they have been relatively strong, people are still feeling like they can afford it.
Now as we move into the holiday season. Do you think there's indications this is going to continue on.
It's beginning to look that way. The forecasts earlier this year were that we would see a fall off in the fourth quarter, and so far we haven't seen that. This is September numbers that were getting next on Thursday, and that's the third quarter, but it will set us up for the fourth quarter. We'll see what kind of momentum we have going into the fourth quarter, and so far there doesn't seem to be a reason to think people are pulling back. As you noted, gasoline prices are
down even though oil pres are up. We're in the winter driving season the beginning of that and less demand out there for fuel, and we've got some surpluses that have built up in the USL Company's tanks out in Oklahoma. So as long as people feel like they've got the money and they don't have to put it to gasoline, they should continue to spend.
Now, another surprise help is that dock workers strike. It lasted three days and then put on pause.
That's a big help to the economy overall, because we would have had a lot of people who were out of work, and that would have slowed the economy and probably raised prices after a couple of weeks because we'd have shortages of things coming in we did see in the CPI last week that food prices food at home went up by four tenths, the most in eight months.
And that's the kind of thing that would have been affected fruits and vegetables coming in other foods if the port strike continued, and we might have seen a sort of a negative jobs report because this week is coming
up as the reference week for the October payrolls. And if you had all those dock workers on strike, along with the Boeing workers on strike and the people who are out of work because of the hurricanes, we could have had a negative print for October, which would probably not go over well with public opinion.
Well and those hurricanes. At least we're going to see a big pickup in home building, construction, roads, schools. I mean, we're going to see hopefully, hopefully very soon.
That's the paradox of these natural disasters. You can never make light of the suffering of the individual people who have gone through this, who've lost their homes and all the things that matter to them. But on a macro national basis, natural disasters like this are good for the economy because of all that spending on new stuff, and it adds to GDP, so we will see that effect.
Seems like from Aleen, the stuff in the Carolinas may take longer to fix because a lot of roads are out and broken and that'll take a while to do. But in a year or two you would look at the GDP figures and you wouldn't see a real dip.
Well, well, you know, let's talk more about housing broader, not just from Helene and Milton, but housing prices still making home ownership a little tough for a lot of people, and that has certainly got to impact retail sales and impact and you say, you know, inflation.
Also, it's something to watch. We did see in the CPI report that owner's equivalent rent, which is the weird statistical way the government accounts for home prices. We're at the lowest in about seven or eight months, just up three tenths, and that's what the Fed has been waiting for. If that continues, that's good news. It will help prices
level off. But prices have been going up and the big reason for that is that there's not enough homes for sale because interest rates are high still for mortgages and people don't want to move.
Well, yeah, it's a cruel cycle, though September retail spending data out this Thursday are thanks to Michael McKee, Bloomberg International Economics and Policy correspondent. We move next to corporate earnings from the world's leading streaming TV service, Netflix, posting its third quarter results this Thursday. What will they reveal about subscriber growth, revenue from advertising, possible plans to hike subscription fees for more. We're joined by Geetha Raganathan, Bloomberg
Intelligence Analysts on US media. Geitha, Well, two hundred and seventy eight million subscribers worldwide can't all be wrong. What do you expect to see from Netflix's earnings this week?
Yeah, Tom, thank you so much for having me so. As always, you know, Netflix is still very much a subscriber story. Consensus current currently expects about four point three million new subscribers ADS for the third quarter, and that momentum is expected to kind of continue into the fourth quarter with them having lots of heavily anticipated content with
about seven million gains. So if you kind of just look at the overall picture for Netflix, Tom, what we saw was we saw a tremendous slow down in subscriber growth in twenty twenty two, but twenty twenty three and twenty twenty four we're seeing them add close to almost sixty million subscribers, so thirty million subscribers in each of those years. So I think, really, as investors kind of start to think about the story, it's really about where
is subscriber growth? What is a normal level of subscriber growth once you have taken into account these two initiatives that they introduced, which was the advertising based tier as well as the password sharing crackdown, And so I think that is going to be one of the biggest questions apart from, of course what you said, which was the price increases, we are really banking on a big price entrase.
Now besides the paid sharing members, the new ones you know after that crackdown. Now, do you see more international growth? Are there new countries for Netflix to conquer?
Yeah? So majority of the growth tom is in the international markets. You know, that makes up two thirds of you know, the subscriber base. Most of the growth, of course, is coming internationally. Not to say that the US market is not growing. It has actually grown really well after they introduced both the ads as well as the paid sharing initiative. But yes, as they kind of expand to more markets, we definitely expect you know, growth long growth
runway in a lot of these international markets. Remember, penetration for Netflix in the US is very, very high, but it is pretty low in some other markets. So if you kind of look at Latin America again, penetation is high, but if you look at you know, Asia Pacific, it's only at about twenty one or twenty two percent. If you look at Europe again, it's pretty low. So there
is substantial for growth. You know, it's just going to depend on what are all the different subscription tiers that they introduce there to kind of really rev up growth in some of those markets now.
And other growth is advertising revenue, and I know you could talk about a couple of deals that they have with with major sports networks that's coming up won't be reflected in the numbers we're going to see just you know, this week, but looking ahead it could really explode.
Absolutely. So they have kind of downplayed the role of advertising, you know, at least for the near term, but we know that they are doing so many things that is really going to kind of turbo charge that business. So one of the big things that the industry is kind of looking for, is that Netflix is entering the sports arena.
They have two NFL games on Christmas Day. Now that is going to be big, not just in terms of viewership, but obviously they are going to those are That's a highly anticipated content when it comes to you know, advertising, So you know that is obviously creating a lot of buzz. Then you have the much anticipated Mike Tyson versus Jake Paul boxing event which is going to happen sometime in November. That should drive the subscriber editions, it should enhance Netflix's
overall reach. So all of those, you know, they're basically prepping for advertising to take off in a big way. And then remember, starting in January, you have WWE content that is going to come to the platform globally for the very first time. So they're really investing heavily in sports content and sports adjacent content and that should be a big draw for the advertising community.
Now, since Netflix last hiked prices it's a first standard tier January of twenty twenty two, a number of competitors have done the same. Do you think Netflix is poised to increase the cost of both of its tiers? The standard and the ad supported one more revenue coming in.
So I think right now, if you kind of look at con census estimates and if you just look at sentiment in general, everybody is kind of banking on this price increase. They are definitely overdue for a price hike on the standard tier, that is the one that costs about fifteen and a half dollars in the US. They haven't raised prices for almost three years, as you just pointed out, Tom, and remember before that they had a steady cadence of price increases. It was coming every eighteen
months or so. It was about a ten to eleven percent price increase. So we are definitely looking for a pretty big bump this time around. They have the content to support it. All of their competitors are raising prices, and we know that in general the competitive intensity across the board has come down quite a bit.
Okay, third quarter earnings from Netflicks out this Thursday, are thanks to Geet the raganathin Bloomberg Intelligence Analysts on US media. Coming up on Bloomberg Day Break weekend, we'll look ahead to a meeting of European Central Bank policy makers and whether another rate cut may be in the cards, Tom Busby, and this is Bloomberg. This is Bloomberg Daybreak weekend, our global look ahead at the top stories for investors in
the coming week. I'm Tom Busby in New York. Up later in our program look ahead to a cavalcade of economic data out of China and earnings from one of Asia's biggest chip makers. But first, the European Central Bank has already cut interest rates twice in this cycle, and markets are expecting another move lower when policymakers meet this week. As inflation slows and near's the ECB's target focus has
shifted to the weakness in Europe's biggest economies. For more, Let's go to London and bring in Bloomberg Daybreak Europe Banker Caroline hepgar Tom.
The European Central Bank has not delivered many surprises on its rates cutting journey. The first move in June was widely telegraphed, as was the second in September. Now, as we can out down to the next meeting, all signs point to another twenty five basis point move lower. September's Euro Area inflation print came in at one point eight percent.
That's below the ECB's target, but that good news has come with much less positive information when it comes to the continued weakness in the major economies in Europe, in France and Germany. Now we've been discussing this with Eric why Tennis, who is the EMEA head of investment strategy at JP Morgan Private Bank, and we began by asking him why markets are not currently pricing a recession for Europe right now.
There's definitely been an unfortunate loss of momentum. Economic surprises have been surprising to the downside. However, the overall trajectory of the economy I would categorize as remaining buoyant enough. What happens with the consumer is going to be key as we go forward. The ECB likely support with interest rates to the downside is also likely to help keep
things afloat. Linkages to the US are also constructive. The US economy has been outperforming most expectations across the board, so the degree of linkages across the pond should also be at least relatively helpful to keeping Europe, you know, sort of carrying forward through, albeit with a lower level of growth relative to the US and and other key economic areas.
So what markets are pricing in is sort of quarter steady pace of quarter points rate cuts from the European Central Bank. Does that tally with how you think that the response should go given the weakness in the European economy.
Yeah, it basically does. The you know, the Europeans have the more singular focus on you know, price stability i e. Battling inflation. In the US they categorize it more so as both price stability i e. Battling inflation and additionally helping to ensure full employment. So by that methodology, it suggests that the Europeansentral Bank really should just be focusing
on inflation and inflation alone. But I guess the reason I bring that up is even though it's not officially part of their mandate to help facilitate the labor markets and try to be cognizant of supporting the regional economy, I do think that they have that lens and do want to try to be helpful if inflation allows them to.
And the subsiding of inflation in the region and on a global level is really helpful because it allows central banks to become more accommodative with softer interest rate policy, which should.
Help how far behind the curve is the ECB? What is the neutral rate? Has that shifted to your mind?
I actually think they're doing okay. We don't believe that they're behind the curve, and we think that a steady as she goes pace feels reasonable to us. There was certainly an argument that the FED was behind the curve looking over there in many forecasters' minds, and that's part of why they did that kind of quote jumbo sized cut of fifty basis points. Most recently, I would more so categorize that one as not necessarily being behind the curve, but a little bit of a twenty five plus twenty
five catch up there. So now that they are kind of started with that larger initial sized cut, I think that you know, both major central banks probably can go with a bit of a steady as she goes regular type of cadence.
Thinking about the start of earning season in Europe, I wonder where you'll be looking for signals around the European consumer, given you know what you've just been selling us about their centralgy to the European economic picture.
Consumer always matters that it really matters in the US. It for sure matters here in this region as well. There has been some softness across the board in conjunction with what you know, the general trajectory of economic growth has been. Wages have been solid though, and ideally, you know, robust enough wages allow consumers to continue to do their thing and consume, which is going to be incredibly important
for how this earning season goes. It is still a very nice story in terms of equity market performance on a mostly global level in twenty twenty four, so it's going to be very contingent upon earning's delivery or lack thereof, to see how we do in the remaining two and a half months or so of the year.
That was Eric why Tennis in me ahead of investment strategy at JP Morgan Private Bank, speaking to me Andrew Bloomberg Stephen Cowell on Bloomberg Radio. So that's an investor perspective on the economics here in Europe. Let's hear now from Bloomberg Economics on this as we look ahead to the next European Central Bank decision just in the next few days. I've been speaking to our senior your area economist,
David Powell. David, is there any doubt over whether the ECP will actually cut by twenty five basis points.
The markets have completely pricedt and we think that's going to happen. And those expectations have been reinf forced by words from members of the Governing Council. Even some of the most hawkish members of the Governing Council in recent days have come out saying they support a cut in October. So it's pretty clear that that's going to come.
Okay.
So any potential surprises.
Then well, I think what people are going to be focusing on is what's said at the press conference, in particular where the ECB sees the risks and their risk assessment to GDP growth and inflation. Up until now, they have seen the risks to inflation as balanced, listing both upside and downside risks. I think the biggest surprise might be something like if the ECB were to emphasize to a greater extent downside risks to inflation given the economic weakness in the Euro Area.
Yeah, that has been the real concern, isn't it the slowdown in the economy in terms of the hints that we get about what happens further down the road in terms of right cuts in Europe. What might we hear as for the the US, people are dialing back the idea of big rate cuts from the Fed.
Well, there is a big difference between the US and the EU Area, which is a story that has persisted throughout this period of monetary tightening and now monetary loosening, and that is the US economy is held up much better than the Euro Area economy, and so we haven't had those positive economic surprises in Europe that the US has had, which kind of has reduced those expectations for easing.
So a December cut is probably you know, it's essentially a done deal the markets of price that it's pretty
much universally expected. And the reason that that is so expected is the ECB will have another quarter than of data from the National accounts on wage growth, in particular compensation per employee, which is the most comprehensive measure of wage growth, and in all likelihood that will have decelerated again, giving the ECB further confidence that price pressures are ebbing and that they can cut without doubts of inflation remaining at tark.
Yeah, and of course inflation is the central mandate for the European Central Bag, so how much can they really consider growth as a factor given that mandate.
Well, inflation is essentially determined by supply and demand, and growth is aggregate demands. So growth is the primary determinant of inflation.
So while there are.
Times when the two objectives are not are not calling for the same thing, boosting the economy and keeping inflation at target. And the ECB, unlike the Foot Reserve, does have a mandate of just inflation. They can't ignore growth because at the end of the day, if the economy remains weak, if aggurate demand remains weak, inflation will be below target. And that's something that we really only just
got over at the time of the pandemic. Don't forget before that inflation was below target for nearly a decade and Droggy tried a lot of things in order to return inflation to target. And one thing we know from the UAE is experienced even more clearly from the Japanese experience, is that when you have persistently low inflation for a long period of time, it becomes kind of embedded and that's a difficult situation to get out of.
Oh yes, Japanification of Europe is a really big worry. Isn't it In terms of the economic picture. What is your assessment now of how weak Europe is in terms of France and Germany. I mean, we know there's been political uncertainty, there are enormous global pressures and geopolitical kind of tectonic plates that affect what's your concern around economic growth in Europe now?
Well, the main source of weakness in Europe is Germany actually, and in particular Germany's industrial sector, which has never really kind of recovered in recent years and it's facing a number of problems. One is the economic slowdown in China, which is a huge destination for German exports. And also the Chinese are moving up on the value ladder in terms of their own production, so they're less fewer things from Germany, like cars, for example, that they're now making
in China themselves. So there's a structural change going on there that's impacting Germany. So that's something that's going to persist for a while. But when you take Germany out of the picture of Isabelle Schnabel is, a member of thecb's executive board, recently did in a presentation that your area looks much healthier so other countries are doing better.
In particular, Spain has had very strong growth, France has had growth that's much better than Germany, although that's probably been boosted by the Olympics, and that boost will fade. So the real worry right now is Germany, and that's not going to be easy to solve, given that some of these problems are structural.
And yet, of course, very soon, if not now, focus on the US presidential election, and we know that European officials are worried about the possibility of a second Trump White House. What that might mean to the European economy is that also something that people are thinking about. Is very split in the very uncertain in terms of the US presidential race. But what US policy emerges will surely be important for growth in Europe.
Yeah, the your area is a big exporter, in particular Germany, and what we've heard from the Trump campaign is talk of tariffs if Donald Trump were to be re elected. And when you export a lot of goods, you don't like tariffs because that essentially reduces for in demand for what you're producing. So undoubtedly that's creating some fears amongst
policy makers in Europe, and we've heard those aired. Various policy makers from around the different areas, not only the Central Bank but also the European Commission except for have voiced concerns about what that might mean for the Your Area.
Economy, even as there've also been worries about European protectionism versus China, and that is also kind of shaping up as quite a big battle line between Europe and China. Does that help in the short term hin doing the long term ev tarifs on China for example.
Well, as I mentioned, the German industrial sector is having a lot of problems right now, and one of those problems is China. One is kind of cyclical, there's a cyclical slow down there, but the other is structural, and that changes to the Chinese economy and what they're producing.
In Europe wants to shield the economy from the short term impact of those changes, and tariffs are a good way to do that, at least in the short term, but in the long term they've rarely been helpful as a kind of as a strategy to boost the economy.
My thanks to our senior Euro Area economist David Power for joining me ahead of the ECB rate decision in October. I'm Caroline Hepge here in London. You can catch us every weekday morning for Bloombag Daybreak. Youre at beginning at six am in London. That's one am on Wall Street.
Tom.
Thank you, Caroline, and coming up on Bloomberg day Break weekend and look ahead to earnings from one of Asia's largest chip makers, TSMC. I'm Tom Busby and this is Bloomberg. This is Bloomberg day Break weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. A slew of economic data coming out of China this week, including important trade data. Let's get to Bloomberg Daybreak Asia co host Brian Curtis for more.
Tom. China appears to be at a key inflection point on coaxing the economy out of the doldrums and back onto a solid growth path. Coming back from the recent week long holiday, doubt was creeping in to whether or not this is truly a whatever it takes moment for policymakers. Amid those doubts, we've seen a lot of market volatility. Now the coming week brings more data on, among other things, inflation and trade. China is still suffering from weak consumer
spending and an ongoing property crisis. Until we start to see a pickup in data, it may be hard to convince investors that times have truly changed. Let's get to James Mager Bloomberg, Senior reporter for the Chinese Economy and Government. So, James, nice to have you with us here for this segment.
It's probably too soon to see any tangible evidence of a revitalization in the economy from the official data, but we do have some other ways to look at this, perhaps confidence from consumers, some of the high frequency and anecdotal data that you could be gathering. What are you see?
I think the first thing that we want to look at is we just came out of a week long holiday in China, and you know, people traveled more than they did last year. I think number of trips was out ten percent, but the actual amount of people spent on those trips was down two percent compared to prior to the pandemic in twenty nineteen, and so I think what you're seeing there this year in the Chraine economy, people are willing to go out, they are traveling around
the country. They are you know, some people are going overseas, but when they do that, then not willing to spend as much. And you're also seeing that in the housing market, people aren't willing to buy houses, that walling to make those kind of investments. So you know there is activity, but people are holding onto the purse stream very tightly because they're not confident that things are going to get better, and so they're not confident to spend.
I've heard anecdotally that people have noticed the big gains in the stock market and that that could actually convince them to spend a little more. But it seems like what you're saying is yeah, maybe down the road, but still caustious at the moment.
I think some investors are happy about the stock market increases we've seen since the PBOC announced that big stimulus package at the end of September, but a lot of other stock investors that I've spoken to are still staying, well, it's great that stocks are rising, but I'm still underwater.
You know, my portfolio is worth half what it was five years ago, So even if you see a big spike in prices now, it's going to take another sort of similar size gain for me to even get back to being may all again, let alone making any kind of profit. So you know, if we see this continue over time, that may lead to a wealth effect and that may make people more confident, but I think at the moment people are still looking at it cautiously.
Yeah, in order for some momentum, you have to keep coming up with innovative ideas. And we saw a couple announced by the pbocs, such as the swap facilities where institutions can exchange holdings for cash and can potentially buy back shares. And I know we don't have a lot of details on that, but that is an idea that came forward that I think did catch a few people by surprise. And then recently we also had Premier Lee Chung asking experts for innovative ideas. That seems a little unusual.
I'm curious, you know, what they're expecting there.
And I think with the swaps, the swap thing that the PBOC announced, it is innovative idea and we'll have to see whether companies actually take them up on that offer or not. For Premier Le Chang asking for suggestions, you know, there has been a lot of crackdowns on Chinese economists, you know, criticizing government policy, and there's been you know, there was reporting that one economists have arrested
for making comments criticizing Hiji Pink's policies. And so coming out now and saying, hey, we'd like to get your ideas about how we can fix the economy. Some people may take that opportunity, but other people still I think we'll be very cautious about becoming, you know, making too many critical suggestions.
Yeah, it brings back memories of the one hundred flowers campaign back in nineteen fifty six. People might be wary.
Yeah, exactly, come out and tell us your ideas, and then the people who speak out too loudly then get their heads locked off. I guess figuratively, I just think people, you know, there are economists who're making a lot of suggestions about the government should do. The question then, is is the government really going to listen to them or not.
Now, when we look at the data that's coming in the next week, I mentioned earlier that it's probably too soon to see a lot of tangible evidence here, but exports have actually been reasonably solid for this year. Has been one of the areas that hasn't been too bad in terms of the inflation numbers. Are we still kind of teetering on the line, particularly on the producer prices side, between inflation and deflation.
Yeah, I mean on the data for September that we're expecting, it still shows that producer prices are inflation will be even deeper than it was in August. Consumer prices positive, but the only just and again that's probably being pushed up by high vegetable prices, so really not a sort of a sustainable increase in consumer inflation. And yeah, we will.
The expectation is we will continue to see strong exports. Obviously, this is the pre Christmas season now, so lots of companies are trying to get Christmas goods and Christmas presents out the door and onto ships to the US or to Europe. So we should continue to see strong exports. But imports are looking very weak, as you know, continuing
to look very week. The expectation is that they're actually going to fall, and actually fall in September, which I just go to underscore how bad Chinese domestic demand is.
All right, James, thanks so much for joining us. Jims Mager Bloomberg Senior reporter for the Chinese Economy and government. Now let's turn to the chip sector with Doug Krisner and a preview on TSMC earnings.
Thanks Brian. In the week ahead, TSMC will disclose its full results for the latest quarter. This is interesting because we already have the company's revenue figures. Quarterly sales were above forecast, a thirty nine percent increase from last year. I think the fair question now is how will those sales figures translate into profit. For a closer look, I'm joined by Katherine Thorbeck Bloomberg, a columnist covering tech in Asia. She joins us from our studios in Tokyo. Thank you
so much for making time, Catherine. I think now that we can focus on what these sales figures really mean in terms of the way in which AI spending, the hardware spending, has been driving a lot of the positivity in TSMC. Is this assuaging worries maybe that people feared that AI spending would begin to wane a bit.
You know, as you mentioned, TSMC's quarterly sales beat forecasts and beat even their own forecasts, and so you know, there has been some concern over this year over whether this is sustainable, whether the generative AI boom is sustainable, but TSMC's figures are showing that it's still going very strong and the demand for a hardware is still going very strong. You know, In the long run, we'll sort of have to see if the companies that are buying these AI chips will be able to make money off
of all of their AI investments. But for now, I mean, TSMC seems to be really cashing in and really doing well and doesn't show any signs at the moment of slowing down.
What about capacity, particularly with the facility on Taiwan, are they able to keep up with demand we own?
So I think that's going to be a big question that we're going to see with the guidance that they give us, you know, whether they will be able to keep up with demand. And I think another question going off of that is when they will bring on the two nanometer chip mass production. So we'll get some of
those answers on Thursday. So far, they've been sort of assuasion concerns about not being able to meet demand, but you know, as we spoke about earlier, demand has been very very high for their products.
This is the main foundry making chips for in Nvidia and Apple. Do we know which company is more important to TSMC?
So, I think that's a good question. I mean, Apple and Nvidia are the two biggest customers for TSMC, and Vidia is obviously sort of the AI darling at the heart of this generative AI boom. At the same time, TSMC is the sole manufacturer for the chips that go into the iPhone processors. There was some concern from some analysts about softer demand for the latest iPhones, the iPhone sixteens,
and how that could impact TSMC. But I think, you know, they've gotten so many orders from other customers such as Nvidia and such as Intel, and I think that'll sort of really booy their earnings this quarter.
One of the things that we've spoken a lot about on the show the fact that people have been worried for some time about the over concentration of semiconductor production on Taiwan, particularly when you look at the geopolitical tensions between the US, China and Taiwan on and we've also spoken about the need for the company really to demonstrate it's been able to diversify away from Taiwan a bit.
Now.
I know TSMC is trying to build facilities in the United States. They've also got some facilities underway from what I understand, in Japan. You're in Tokyo. Can you tell me a little bit about what is happening in Japan as it relates to TSMC.
Sure. So, TSMC is building fabs in Qshu, in Kumamoto in the Southern Island in Japan, and from what I've heard, that's going very very well. You know, it's actually planning on opening on time. They're building out another one, and I think they even have plans to build out a third one that will really bring the sort of cutting edge chips manufacturing to Japan and outside of Taiwan. And you know, as you mentioned, I think that this sort of US China geopolitical tensions has been casting a shadow
over TSMC, a sort of longer term shadow. And you know, the current presidential elections candidate Trump has sort of express some concerns about you know, continuous continual US support for Taiwan. You know, I think if you were to take a step back though, in my opinion and sort of the broader picture, and TSMC's founder Morris Chang has actually said this himself, I think if China does invade Taiwan. I think we'll have, you know, far bigger concerns than just
tech stocks and and sort of chip production. But I do think that, you know, this has been sort of a theme for TSMC since it's been founded, and as you mentioned, they're also trying to build capacity in Arizona. There were some rumors early on that that was they were having a little bit of a struggle there, some sort of culture clashes and some labor disputes and getting that fab off the ground. They've sort of assuaged some of those concerns and said that you know, it does
seem to be going smoothly. You know, we will see. I think bringing on shoring chip manufacturing into the US is a very very difficult task for so many reasons. I mean, getting the equipment and getting you know, skilled labor force, and you know, it's obviously been central to the Biden administration's sort of Chips Act and their efforts there. But that's it's a very very difficult, if not impossible job. So I think we're going to have to see how that plays out in the long run.
We've talked a little bit now just about the expansion geographically, but I'm wondering in terms of CAPEX spending, whether or not TSMC really has to spend a lot more for the current operation in Taiwan in order to keep up with a level of sophistication being demanded by a company like in Nvidia and having to invest more in the sophisticated equipment that comes from the Dutch company ASML. Do we know anything about that.
Yeah, So I think TSMC is really at an advantage because it is currently making the most advanced chips and then you know, able to get more CAPEX to be able to spend more on sort of research and development and building out capacity. And so I think compared to competitors,
TSMC is sort of in the best position. I mean, they are already so far ahead of the game and you know, have a virtual monopoly on the most advanced chips out there, and I think that really sets them up in a good place going forward.
Catherine, thank you so much for making time to chat with us about TSMC. As we look ahead to earnings in the week ahead, we already know how a revenue performed in the last quarter, a thirty nine percent increase from last year. Catherine Thorbeck is a Bloomberg columnist covering a tech in Asia. Joining us from our studios in Tokyo. I'm Doug Krisner. You can join Brian Curtis and myself weekdays here for Bloomberg Daybreak Asia, beginning at eight am in Hong Kong eight pm on Wall Street.
Tom, Thank you Doug, and thank you Brian. And that does it for this edition of Bloomberg day Break Weekend. Join us again Monday morning at five am Wall Street time for the latest on markets overseas and the news you need to start your day. I'm Tom Busby. Stay with us. Top stories and global business headlines are coming up right now.