Huawei Threat Poses Grave Risk To Trade Deal

S and China continue to escalate. The U S Commerce Department announside it has placed China's largest telecom equipment company on the Entity List, which denies US suppliers from selling to Whahwei without a license. To get a sense of what this does mean, not just for Whahwei, but for the trade discussion between the US and China, we go to Meredith Sumter, Meredith's head of research and strategy and operations for the Eurasia Group, joining us in Washington, d C. Meredith,

thank you so much for joining us. Do you think this band, which seems to be pretty serious, will actually be activated? That's the critical question here, Paul, and what we're gonna be watching for moving forward is whether or not the US enforces a blanket VAN or whether it chooses to instead issue licenses to most US in foreign suppliers. Uh. The actual notice did come forth and say that a license would be required and issued by the b I S,

but it all comes down to implementation from here. So, Meredith, I'm struggling to understand the market reaction today because you are seeing the NASDAK up one point three percent. There seems to be a very risk on feel But it seems like President Trump's issues with some of these big technology companies out of China, this is a major escalation. Why is it not being viewed that way? I couldn't

agree more, Lisa, and in fact this morning. So so the notice came out last night, and at your AGEA group, we've been working overnight to pull together own thoughts and views as to how grave this really is not just for the US relationship with China more broadly on technology issues and on Huawei and five G, but also for the trade negotiations that are ongoing. Even before last night's notice, Lisa, we had drawn down our call of prospects for US

China trade deal by the G twenty. Of course, this is when Presidents Trump and she are set to meet. We dropped our call from a six probability to just a probability. Now you add on top of this the latest solvo against Kahwei, and we find ourselves in a very serious situation. Indeed, Yeah, it's interesting, Meredith that that's a significant reduction um. And again I would historically that would have had a very negative impact on the market, but as Lisa noted, the market seem to be shrugging

it off. I wonder what the impact will be on China as it thinks about how it wants to react. How do you think China will react to something like this. We need to watch closely China's moves over the next day or two. It's been very quiet out of Beijing, and I think probably this is the sort of shock um but also efforts on the part of Chinese leaders to figure out how should they respond both to this latest salvo against Huafwei, but also what does it mean

for their broader response to US. China ties. This is all happening at a time fallen Lisa, when we're watching a nationalist sentiment in China which appears to be hardening. For the longest time, Beijing has taken a very moderated tone when responding to US pushing against Chinese industrial practices and policies, and of course with the escalation of tariffs,

that may be changing. And again what it comes down to is, first and foremost, Beijing is going to be looking to understand how lenient or how hard rather will the Trump administration be in executing um UH the approving licenses or not for companies suppliers to be able to continue to work for what? Right now? Why is this important to Beijing? Huawei is its most important, biggest technology company.

It is a global champion in leader UH, and if fully implemented, the entity list would immediately deny Huahwei access to critical hardware and software suppliers here in the US that it uses in this global mobile infrastructure and handset businesses. This could virtually hit all of Huawei's products, high end smartphones, mobile infrastructure, data centers, and cloud services. It's going to have an immediate global impact for any company that utilizes

Huawei products or services. It really puts that company at at grave risk. Meredith, how do we assess whether this is just sort of a chip that President Trump is using to try to bring a deal to a close in the near term versus some sort of longer term effort by the United States to curb Chinese growth and

development and technology space. So the Trump administration would say that that look, these are are parallel tracks that the efforts to investigate Huawei and to come to determination on on what should happen with Huawei with the entity list, So that was separate from the ongoing three oh one trade investigation and negotiations. But critical from here on is watching for signs that Trump is actively seeking to manage the situation, including by signaling to She continued interest in

negotiating um. This will will tell us if the prospect of a meeting between Trump and She to de escalate the trade tensions and to do it to de escalate this latest evo against Huawei will take place in coming weeks or not. Meredith Sumter, thank you so much for

taking the time with us well. The White House on Wednesday initiated a two prompt assault on China, first barring companies deemed a national security threat from selling to the US and to threatening to blacklist Huawei technologies from buying essential components. To get a sense of what this means

for the global telecom business. We welcome wu Jinhoe. Wouin is a senior technology as for Bloomberg Intelligence based in Princeton, New Jersey, and John Butler, senior Telecom services and Equipment analysts for Bloomberg Intelligence. He joins us here in our Bloomberg Interactive Broker Studio. So would I want to start with you if you could just describe what Wahwei does and how important they are to the global telecom space.

Thanks Paul, Thanks Lisa. So so a couple of things. Uh, if you look at Wahwei the way I've always you, blahweh is um one of the fastest growing company that Americans have not really have heard of up until recently. And what Whahwei is the number one telecom equipment supplier globally.

They're also the number one smartphone supplier globally. And UM, you know, from a supply cham perspective, they rely on a lot of the U S components because even though they do make their own chips, uh, they can't make all of it. So there is a global supply chain application from this from a potential ban So I'm just wondering, John, from your perspective, which companies in the United States stand

to benefit the most. I mean, certainly we've there's been a lot of focus on the ones that have that have suffered as a result of speculation that Wahwei could be uh that could be banned from buying components here. So the immediate thoughtly said that I had when I heard this news was g it's good for Nokiana, Ericson, which are not US companies, um, but they compete very

closely with Huawei in the radio based station market. So as all these networks in the US initially and elsewhere around the world later this year upgrade to five G, the race is on between Huawei, Nokia, Ericsson, and Samsung to get share of that market. So I think net net this is good for Nokia and Ericsson. The one

thing to watch is what Jim was talking about. There's the threat of a ban on the supply of US components to Huawei, and so the question becomes, how does Beijing respond to that if in fact the US makes good on that threat. So Jin, how about on the chip side. I know, again some of the big chip makers, a lot of them US based. Uh you know, listen,

Huawei is a big customer. How are they reacting sure. So, Um, I'm looking at my screen right now, and uh, half my screen is green and half my screen is read. So from from the red side has been essentially all the chip makers. Anybody who's anybody in the semiconductor space will supply to Whahwei, especially given their dominance and a smartphone space and on the networking space in particular in

the optical space. So if we look at companies like Neo Photonics of a small cap company, but they supply optical components of Whawe, they are about revenues. And on the other hand, we have companies like Skywork as well as Corvo, meaningful radio frequency chip suppliers globally. Um, you know, they're about ten percent of sales, and then you have a slew of companies that provide anywhere between two to

three percent of total sales to Yahwei. So John, you're talking about how you know there is this sort of positive benefit potentially to providers of five G technology in the United States who are not going to have these restrictions on them. I'm just wondering that you also mentioned the retaliation from China. What are some of the potential steps that China could take Well, the one I'm worried about, Lisa is the potential for Apple to get slapped with

restrictions in China. Um. They derive almost of their revenue from from Greater China, so that would include Hong Kong and other surrounding regions within China. But the reality is that Beijing wanted to really get tough on Apple, Um, it would hurt and it could hurt the US as well. Keep in mind that one of the iPhones are manufactured in China, so they could not only uh, look at Apple or hit Apple on the sales side, but also

on the manufacturing side. It's interesting, John, just looking at Apple, It's off about zero point eight percent today in a market where the nasdacs up over one percent. So clearly clearly some concern in there. Well, which just wondering, you know, if if I'm Whahwei, this is a really big deal, isn't it, Because I mean, this is really a threat to my business because if I can't get chips from the US, can they even source chips to make up

from other parts of the world. Um? Uh, great question, Paul. Uh. The short answer is no. But the one thing that I can say based on the learning's calls that I've heard UM across my sector is that Wawei actually has some STOCKPI stockpiling chips over the past couple of quarters UH to help the risk some of the supply supply chain concerns. We don't know how much that they've inventoried. UM,

it might be a quarter or two of supply. So if this is a short band, and then let's keep in mind a band has not been put in place. But if there is a short ban in place, UM, you know, it might not impact Huawei's business at all, but if they lasts beyond two potentially three quarters UH,

then it could have broader implications for the space. I have to say, Paul, it's interesting just looking at the market reaction right now, it does not seem uh light markets are fully pricing in that Huawei will be banned from buying components in the US because right now, and we're not seeing the sort of response that indicates that people are betting on an escalation and trade concerns. Yeah, you're right, I'm just looking at this strong nastac here.

So there's some pockets of weakness clearly where the semi chips, but otherwise pretty strong that's right. Bloomer Intelligence is Wuginhoe focusing on technology and John Butler focusing on telecoms. Thank you so much for being with us. We appreciate it, so, Paul. Among the people who I spoke with last night at this modern CFO conference was Virginny Costa, chief financial officer

of Goodiva, and it was interesting. She talked about a goal to increase revenue fivefold over the next five year and the way that they're doing it is betting on these cafes that they're starting to roll out. Uh and something called a craffle or crawfle crossotte waffle uh, which sounds delicious and which also sounds like you might not want to know the content. It sounds very good. Let's I started out the conversation. Are we talking about the cafe concept? What is new? Why it was rolled out

in the first place? Uh? And how the first good I have a cafe was rolled out in the United States last month. Let's listen to what she had to say. We decided really to open a cafe for two reasons. First, because we had an existing based in Middle East. We have about forty of those cafe in Middle East that were very successful and in here in North America. As you said, we opened up the first one last month

with a brand new concept and more excitedly. Actually, we also now have an expanded assortment, so we have available about two dozen of unique items and new items. One that I'm very fond of is called the craffle. It's a trademarked name. It's a combination of croissan and waffle because it's actually a croissant that you press in a

waffle iron. And the beauty about it is that you can fill it with either our milk or dark chocolate for an afternoon snack, or you can have it severed in the morning your breakfast sandwich, fill with hamond cheese three cheese, which is my favorite egg sausage and career. And it's really providing now an everyday occasion for our customers to come to go diver and expanding on our special occasion product. Now now you can come to us

every day. What's the financial case for opening up a cafe at a time when restaurants are struggling, and we know that other outlets are closing some some locations, we think that there's a really immense opportunity to really rooted in our Belgium heritage. We have a unique proposition. It's a unique product as as said, and just to share

the craffle, we also have Belgium waffles. We also developed a signature Godiver cafe that pair very well with chocolate and as well as signature tea pairing the same thing very well with chocolate. So it's a a really very nice expanded assortment rooted in a special Belgium heritage, a unique proposition that we believe will really benefit the customers

across all their parts. Is it the experience kind of aspect of it as well, and is that really the biggest source of growth going forward that you see right now for Cadivera. Correct, absolutely, we think that exactly and as a matter of fact, we have a plan to grow our revenue fivefold over the next six years and the big part of that growth will come from those cafe. We intend on actually deploying about two thousand cafe across

the globe. And and again back to that opportunity to really have a proposition that is really bringing customers across all their parts and come in the morning, you can come for your lunch. We also have grab and go, you can come for your afternoon snacks. So now we do have really building on our special occasion gifting proposition.

We really have a unique larger proposition. One thing that we talk a lot about, aside from chocolate and wonderful waffles, is the trade concerns that have been picking up recently. And I have to wonder with a food consumer company where I'm sure you import the ingredients from a lot of different places, how much do some of the trade tensions affect what you do? So the beauty of good Ivan it's not really well known. It's we are actually

a global business. We are presenting more than a hundred countries. We have about eight hundred retail locations. And the benefit of this is that and with the international customer traveling, we are really benefiting from all the different elements that can you know, happen in every piece of the world.

Um So being globe all business help and enables you I believe to have really a strong fundamentals to really be in any sort of change that can happen in So at some point in some place of the world, what do you think it's going to be the biggest challenge over the next few years. That's a very interesting question.

I think what continues and that's part of what the conversation has been together is I think um and with my heart as a CFO, I think what really matters is big data and how we will use and and actually leverage big data. I think there's still a lot of things that everybody is learning, either from a customer perspective because you have access to such a lot of information, but as well as an enterprise how to really leverage

the data. So I think it's um it's a challenge, but as well as a great opportunity for everybody as individuals and as well as professionals in an organization. Do you think that the big data issue is the biggest change facing CFOs right now? I think it's a big company none of what has made that role evolve over already the past few years, and he will continue to evolve. I believe how often do you actually eat goodiva chocolate because you're quite slimmed. I'm wondering, and how often do

you have quaffles, honest, honest chocolates every day? I cannot help it. I have my my favorite proline and the crawfoy is very addictive. Once you have tasted one, you want that for your breakfast morning every morning? So that's what you have every morning for breakfast. I try every morning a different flavor. I have to admit, maybe all have your metabolism. Virginia Costa, thank you so much for

being with us. That was Virginia Costa, CFO of Godiva, on their new cafe concept and maybe why should eat quaffles every morning? I think that was my takeaway. Lisa, it sounds delicious, certainly very angry. Honestly. She elaborated a little bit on the panel about big data and just what that means for a retail brand, how you can predict people's habits so you can predict when people are going to be coming in and better cater to them.

It's just there's a lot of opportunity with big data that a lot of particularly retail facing companies are exploring, but frankly all companies. That was really interesting to me. Yeah, it's interesting, and just for the good divers story, just to hear that, you know, the kind of growth they are forecasting for their company and uh, you know, basing that growth on the cafe concept. So you know, I would say a significant change in kind of their business model,

getting into kind of the retail side of chocolate. Walmart shares are having their best one day rallies since December as they reported better than expected earnings their strongest same store growth in nine years. Joining us now to discuss Bert Flicking ger managing director for Strategic Resource Group, in our Bloombergotter Active Broker Studios in New York Bird, can we get a sense of how long lasting the strength

that we saw in Walmart seems to be? Lisa, the strength will go on for the foreseeable future, certainly the next ten to fifteen years. If you look at Chicago, where you're broadcasting from now, you look at south side Chicago, Land, the state, Uh, from the Great Lakes region to the northeast, densely populated areas. Walmart has one store for every thirty to fifty thousand people in Alabama and states like California, they've got one store for every half a million people.

So Uh, Doug McMillan, dynamic CEO is like the reincarnation of Elane Elane May and Warren Beatties Uh seminal movie Heaven Can Wait. He's uh investing in technology, investing in rooftop, solar, every other kind of savings and lowering prices to race shop or standard of living. And instead of looking at marketing as an expense, he's got the best and the

most effective advertising anywhere worldwide in retail. So for one of the numbers that jumped out at me is that has really for several quarters now is the online business.

Their e commerce business. The revenue is up thirty seven percent. Boy, it looks like, after you know, some initial stumbles early on in their development of their e commerce platform, they've really figured it out, and it looks like they're gonna give Amazon a run for their money in terms of the e commerce across a broad swath of consumer products.

Paul completely correct, And what Walmart is doing is investing in robotics, UH mechanization, satellite communications, doing it everything themselves, where their competitors, with the exception of Amazon, are outsourcing. So Walmart has more terribly like Bloomberg on the terminal.

Walmart has more terrob bytes of data than anybody worldwide, than the other than the US Pentagon to be able to deliver a ninety percent of the Bloomberg XM serious audience within the next fifteen months, UH forty of the top fifty metro areas ultimately forty five of the top fifties. So whether it's in store click and collect or the FedEx centers in the Walmart eleven format in Avon, Colorado, UH, can consumer can save worldwide anywhere anytime with Walmart. No

one else can do that. Well, you know, when we talk about Amazon and the shipping costs, we always focus on how much more they're spending UH to get those packages to people sooner and sooner. And Walmart is trying to compete with that, offering similar types of delivery times. And I'm wondering how much they're spending is going up? Spending is going up, Lisa, But uh, their total supply savings at Walmart. So Amazon will sell small products light and weight small in cube uh and make a lot

of money. But if someone wants to order a baby stroller or a big bag of pet food, UH, Amazon on charges a fortune and part of the savings and in Walmart's brilliance in being the low price leader. Bloomberg Editor in chief of Meredith Matthew Winkler did a great session with Tom yesterday on E S g u UM

Environmental social, sustainable and governance. And Walmart is investing so much in sustainable rooftop solar with Inner Solar and others as his Amazon target all the and BJ's wholesale club too, that whether it's terraces or not, Walmart is finding so many ways to save to reinvest. So, as Tom King says, what are the units? Walmart was up three point four percent as Paul reference today and same store sales, but

units are up over five percent. So you've got dollar stores like Fred's multi regionally potentially filing for bankruptcy liquidation. So Walmart's becoming a shopping center with in the four walls of of Walmart and displacing thousands of shopping centers across America in the In the process, Walmart's winning, to your point, Lisa, for the foreseeable future at least um

to and beyond. So just you know, looking at the Bloomberg terminal um and the pg O function for Walmart's nick at about almost of their sales from international, give us a sense of where do you think that number goes? You want to do? You think they want to continue to grow their international business, grow international, but cautiously in our field work UK Ireland. We saw the twin towers

of power from the continent. Uh all Brecht, which owns Trader Joe's an Aldi in the US and Lethal as well as Occato and Amazon wal run Walmart out of the UK old earlier continental Europe. So Walmart took the money. I was going to take the money from Ozda to reinvest in flip card in India, uh cautiously proceeding in pr See or mainland China because the government is not as supportive as one might think. So Walmart wins in North America, throughout Central and Latin America, and win selectively

in Asia. But India is going to be the big growth engine and will Walmart International will be profitable sales and market share growth up to about a third to thirty five percent of the company over the next ten years. But we would be remiss if we didn't talk about tariffs and Walmart's comments on the fact that they plan on passing along the increased costs of certain goods to consumers and they expect consumers to be able to absorb that.

That was taken as really good news by markets. Can you talk a little bit about why good news by markets is the Bloomberg Terminal reported today Lisa UH gross margins at Walmart or over four percent for the first

time in a long time. Also, Walmart's offsetting tariff increases by going to key vendors, for example an apparel on the Bloomberg Terminal UH cotton prices the last two crop years or historic lows, so Walmart saying, look, the cost of raw materials for the suggested retail price are only

one or one tenth of the products. So you the manufacturer, whether you find savings in cotton, whether you find savings in technology or supply chain, or on shoring manufacturing in America, North America or using other countries in Southern Ation instead of North Asia to produce the effect of Walmart terrorists will be material, as you said, but not nearly as meaningful and and to the point of almost being diminimous in this Gary Shilling deflationary environment where the cost of

TVs and consumer electronics decline year after holiday year. Bert Flickinger, Managing Director, Strategic Resource Group, thank you so much for joining us. We always appreciate your comments on Walmart and all things retail. Thanks for listening to the Bloomberg p andl podcast. You can subscribe and listen to Inner Use at Apple Podcasts or whatever podcast platform you prefer. M Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa abram Woits. I'm on Twitter at Lisa abram Woits. One.

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