iPhone Shipments Fall in China , Baltimore Bridge Collapse

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I think it's starting to get serious. Here here's the news today again on Apple. Apple iPhone shipments in China fell about thirty three percent in February from a year earlier, according to official data, extending a slump in demand from the flagship device in its most important overseas market. This is getting my attention now. I need to check in with men Deep Singh. He's our senior tech analyst for Bloomberg Intelligence. Man Deep, I mean one month, okay, two months?

I mean it's starting to stack up here.

What are we hearing from Coopertino about China risk and opportunities for them right now?

I think the two data points that you got this year, one in February from this source called Counterpoint, where they said iPhone sales were down twenty four percent for six weeks. Now it's validated that they are actually down thirty three percent for the month of February, so clearly, you know they have a problem both with the demand for iPhone as well as competition. I think one of the things that doesn't get as much attention right now is the

Which also goes to show why Tim Cook is in China and saying that extra day to meet with quote unquote top leadership, which everyone seems to think is he's in paying what's going to be his pitch?

I mean, look, I think my phones, yes, and they used to have twenty percent revenue exposure to China. It's gone down to about fifteen percent now. But when you think about the weight of China both as their biggest supply chain. You know, ninety five ninety eight percent supply chain still resides in China and fifteen percent revenue exposure. He doesn't have a choice, and that's where he has to make sure. You know, he's aligned with the party and you know, the locals, and they just want to

Don't know the answer.

I can't think of an answer for Apple, particularly on the supply chain. I can pencil out China going to.

Close to zero terms of sales.

I could pencil that out, put a multiple on it, and there we go. There is no Apple without China in terms of supply chain. There is no Apple without that supply chain.

And for the longest time we thought the risk for the suppliers is if Apple is not giving business to them, they don't have anything to manufacture. Well guess what they have, you know, a Huawei and the local guys, and so that's how they are going about the business right now.

So if I'm Tim Cook and I have seen this for years and I want to diversify my supply chain. What does that look like?

What is that?

I mean, it's we did a big report. It's a multi year yes, and you know, the assembly part is already moving to India. We've seen a big rampop in India. Almost twenty two percent of the phones last year iPhones, not the highest end, but a lot of the models were assembled in India, and gradually they will have to diversify, you know, the assembly side. The problem they are running into is the com all the components that you need to manufacture an iPhone and the complex device that it is.

Here to date stocks down eleven percent trailing twelve months, it's up seven percent. Well, that can make it from here a bear case could be made here big time. I mean, look, I mean a long term multi bear case here. I've got supply chain issues. I've already zeroed out my China revenue.

And revenue is going to be changing because of all the new laws.

Right in terms of core cases could be Yeah, the DJ lawsuit, it's coming at the worst time for Apple. I mean, they should be doubling down on other markets where they can acquire share that they may end up losing in China. Obviously, the DJ lawsuit is not helping. And the EU regulation the digital markets acts, so from a regulatory perspective, you're right. I think the bear case is really around the revenue exposure and I'm sure the supply chains they'll moddel through in terms of making sure

I mean, you know, thirty two buys eighteen holes out there in five cells. That's about as middle of the road as I've seen Apple in twenty years in terms of the street.

And it's waiting in the s and p is also falling. Yeah, that too, So I mean.

I equate it. It's similar to Tesla. Actually, in some ways, Tesla and Apple are very similar because Tesla also has a revenue exposure. It also manufactures it cars, But I think Tesla's supply chain is more diversified. That's the one big difference is they do manufacture elsewhere.

Here's a dumb question, why can't they just build stuff in the US? Like, I know, it's not as easy as like here's a plant, let's PLoP it down in the US. But like why is India the next port of call? Like why not the US?

Well, again, it's the components. So think of the bill of Yeah, there are certain components that can only be sourced over there, and over time they can move things around. But if you're talking about you know, a twelve hundred dollars phone, it has a certain bill of material things are done in a certain way. That's why it comes at that cost. We're not talking about a five thousand dollars phone. If they you know, relocate things overnight, that price could double triple.

I mean, okay, that's crazy. But you remember when the iPhone was coming out of a thousand and it was like, no one's going to pay that. This is insane, this is ridiculous. Now it's like twelve hundred whatever.

Yeah, exactly.

The market adapts, as we've seen here. All right, So if you're a bull, are you simply saying there's two billion units out there, they'll forgret to way to make money off of those things, and that ecosystem, I.

Mean, the bull case is still the ecosystem and the fact that they have an install base of one point three billion users you know who still have the iPhone and they will refresh the phone at some point, and everyone still likes the iOS ecosystem. I think what Huawei is doing is laying out a path where people can move out of the iOS ecosystem. And then the whole AI thing and the regulatory stuff I think is just making it worse. Word the timing of it is just words for Apple, right, now interesting.

Interesting, So the developer conference in June, right, that's gonna the pressure is gonna be big for them to reach.

And remember they're looking at leveraging by DO. Now that the reason for leveraging by DO for AI in Chinese region is just to please you know that, the fact that they're using a local AI player as opposed to deploying their own AI.

So that's the other aspect of it, all right, Man, Deep sing thank you so much. Is he's the best man, Deep Singh. He covers all the technology for Bloomberg Intelligence along a Runa and the whole team around the globe London, New York, at in Silicon Valley. We've got a big team in Asia as well, so we've got the global tech space covered head to toe.

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Michael McKee joins us, our global economics editor here and Michael, when we see a bridge in a major port city like Baltimore collapsed into the river. There are economic implications here, and we're just learning more and more about Baltimore as a port city, Baltimore as a city where a lot of cargo transit.

Its over that bridge.

How are you thinking about it from I guess a regional economic impact.

Well, it's a regional impact and to a certain extent, a national impact because of the type of cargo that Baltimore handles.

It is the.

Largest port for automobile.

Imports, and I didn't know that before.

Most nine hundred thousand cars, cars and other trucks came through there. Plus they also handle what they call roll on rollofs for big companies like Caterpillar and John Deere, so a lot of equipment goes through that port. It is one of the bigger ports on the east coast of the US. So there's going to be an interruption there, first of all, because there's no way to get in or out of the port at the moment until they

Get out again.

And then there are more that would be coming in that in theory can be diverted, but it's going to be a question of capacity for getting the tonnage off those ships others.

It's interesting.

I have to admit I am a kind of a trade shipping geek, and I have an app on my phone that tracks this stuff. So I'm sitting on the Jersey Shore beach and I say a big cargo ship, gup. I want to know where it came from, where it's going when it's carrying. And what I do notice is the ones leaving the New York Harbor often the next stop is actually Norfolk, Virginia, more so than you would say Philadelphia, Baltimore. So perhaps, but I can't imagine putt

Going to be a bit of an issue. They also it's a major distribution hup there on the north side of the bridge. They have Amazon FedEx under Armor Home Depot. They all have big warehouses there and the stuff that comes in and out to those warehouses and this will be more of a regional impact but won't be coming in and out. So there's going to be have to be a lot of logistical changes made. Now the good news is to the extent that I don't know if

Now, this is a.

Much worse This is a much worse situation than those. They were able to get them rebuilt on a fairly quick timetable. It took five years to build this bridge, so the hope is it would not take that long to rebuild this bridge.

So let me ask how long This is a completely unfair question and give you in a minute, But how long does it take for these kind of issues to filter down into prices for example? And then how is the feggan to look at it, because yes, it's transitory, but two and a half years and then the confidence and the expectation of inflation that isn't transitory.

Well, it's hard to say at this point because companies are much better and the pandemic forced them to be much better at being able to change their supply routes and supply lines on short notice. If we don't get stuff or we can't ship stuff, it will raise the price probably, but it has to last for a while if they can find alternate ways around it. Transportation is a very very small part of overall goods prices, so it's probably not going to have a major national impact.

All right, Michael McKeith, thank you so much. We appreciate that. Michael mckea economics editor.

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Okay, let's get to some breaking data we had at the top of the hour. And that's a consumer confidence. So the Conference Board consumer confidence for March coming in a little light, coming in at one oh four point seven. Also, or was revised lower the present situation a bit better one point fifty one. But it was the expectation number that disappointing, coming in at seventy three point eight. So let's dig through the numbers here. Joining us is Dana Peterson,

Sure, the expectations number is made up of three pieces, employment, incomes and business conditions, and all three you were down in the month.

Well what does that tell us?

Well, tells us that consumers are a little bit worried about the future. Certainly, this expectations gauge has been dancing in around eighty and eighty really is the threshold for which below that consumers think there's a recession coming. But we also do have a separate recession question where we ask consumers do you think there's going to be a recession of the next twelve months, And they've been continuing to be less convinced of that. So there's some mixed

So, Dana, it seems like from all the polling you see out there that inflation is probably issue number one with consumers out there. Yes, the rate of inflation has declined, but boyd, prices are still high, whether it's food in the supermarket, gasoline for your car.

What's your data show you about that.

Sure, we have write ins where we ask consumers what's your most important issue, and complaints about inflation and prices are still number one. They're still complaining about food and energy prices, but in terms of energy, the complaints are a little less severe, a little less intense. So consumers are seeing a little bit of a break there, but for the most part, there's still very worried about prices being elevated. Eggs and gasoline costing more than they'd like.

Yeah, dot dot dot, because you take a look, there's a survey out that shows that gasoline in the summer could top four dollars. Now, so there is that coming out there. You look, cocoa prices top and ten thousand dollars. And then you have this issue at the Port of Baltimore, right, and then you have this bridge collapse and that could

Sure, I mean, we can't tell from this report because you know, the data was fielded. Sure start, we redialed it before this happened this morning. But certainly if consumers think that there's going to be higher gasoline prices or that supply chain disruptions from the incident in Baltimore are going to make clothing and cars more expensive, then certainly their confidence is probably going to wane.

All Right, Dana, thank you so much for joining us. Dana Peterson, she said, Chief economists at the Conference Board. We had the Conference Board coming out with some consumer confidence data today, a little bit weaker then expected, and certainly and some downward revisions from the prior month. So again, consumers a little bit wavering, some confidence out there. Inflation remains stubborn for many folks out there.

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All right, let's see what's happening with these markets?

Checking with he does his stuff. We're a living Carolshlife, chief investment officer of BEMO Family office located there in Minneapolis, and she's joining us via zoom. So, Carol, what do you make of this market here? What's driving stock price is higher?

In your opinion, I think there's a growing belief that whether it's not even a soft landing, it's no landing at all. There's a growing belief in the sturdiness of the economy and what's going on in the US. There's also a lot of physcal stimulus that's finally freed up. It's been teed up for the last couple of years, and now it's actually moving into markets and supporting things. We're doing exciting things like reshoring, we're building artificial intelligence

Anymore.

It's a much broader basis, and you've seen a broadening out of the leadership, which is very reassuring and supportive for constructive markets.

So again, a lot of folks, I guess we did see that that November December moving the market, a broadening out of performance.

How important is that for the market.

Because it just seems like technology has got to lead this market, but you need to see us some other sectors participate as well.

Yeah, it's definitely.

It's definitely important for the sustainability and durability of a market advance to have most of the participants or most of the constituents participating.

And you're definitely seeing that.

You're seeing a turnover where you've got stabilization, some interesting things going on with financial services, you've got consumer goods companies moving both staples and but more particularly the discretionary.

Side of things.

We'll have earnings coming up in a couple of weeks, so we'll be able to start parsing through some of that. But it really is vital for the for this for the ability of the markets to carry on that more and more are participating in it, and it's interesting on a day like today, even a lot of those magnificence haven't aren't in the top tier. They're they're holding their own,

How do you judge that, Carol, I mean, because there are because they're they're not going to be able to catch up to like pre pandemic levels. You can make an argument like maybe energy and industrials we've seen, but how do you know which sectors are going to be able to have that real balance and which ones are just going to be too exposed to rates, say and the consumer.

I think it's really important to not necessarily just invest sectors. But what you saw, especially in the last quarterly earnings.

As you saw a big dispersion even within sectors in terms of who was adapting the higher rates, who was adapting the higher costs, who wasn't. You saw a lot of credit attributed to individual companies that talked about right sizing businesses where they were laying off in one part in investing strategically in another.

So it really is a stock pickers market.

So maybe the bigger question is do we go back to a predominance of active management and those active managers who are able to parse through the companies that are

Are there some sectors, given given that the bottoms up pickers market in some people's perspective, are there some sectors that generally you guys are favoring at this point?

Yeah, I think. I mean there's a variety of sectors.

We've liked industrials for a very long period of time, not the least of which is because the fiscal stimulus tied up are or teed up if you will, for those sectors we've liked industrials. We do think financials will need to play. Healthcare is very important as well, and there's a lot of innovation going on in medical devices, biotechnology services, lots of different things that are benefiting.

And technology and communication service.

Are important as well because they, as you mentioned, there's such a significant component and they builter over into virtually every other industry as well.

What do you do?

This is totally talking my own book, but some of the stocks that have done really well this quarter is Constellation Energy. It's a straight up nuclear power company, and that has done really well as a derivative play of data centers and AI because you need so much power. And I'm wondering if this is like the octopus legs for AI, like you have to go into those sectors that will also really benefit. How do you think about that?

Yeah, I think it's really important because it's not just to me.

It parallels very much what happened in the first dot com first internet build out in the ninety five to two thousand. You had a lot of short term exuberance around anybody who could put dot com in their name, but the.

More important longer term play.

There were the people building out the actual infrastructures, the routers, the data centers at the time, and similarly here it really is the play on It's great to say you're going to put up a data center, but you have to hook it to the energy grid. You also have to make sure you have water rights for the cooling technology there. So there's a lot of secondary in tertiary

Term cyclical play. It's a secular play, and.

So figuring out who's going to benefit and where the stocks may not have moved, not Constellation may have moved, but there are other broader implications for those industries that you're spot on in terms of highlighting those.

So you know, outside of let's work it up earnings.

You mentioned in a couple of weeks, what are you going to be looking for here? I mean, I'm thinking about valuation in this market, Carol. I mean, we've seen big, big moves off the October lows. I'm not sure I've seen a commensurate move higher and analyst estimates here, what's your valuation call, and how important earnings coming up?

Well, earnings will be really important to watch and listen for, and there will be a lot, as there have been in the last few quarters, there will be a lot of analysis not just of worthy earnings come in, but what the companies say in those transcripts and in those

There'll be a lot of details that people will be looking for in those earnings. And you're right, valuations are not cheap.

They're not hyper expensive necessarily, and particularly when you look at technology and the way that those growth trends have come in. Those growth trends have supported where the stock price movements may have gone, even though evaluation and are somewhat high. But you know, critical sectors to watch will

But consumers are still spending, companies are still spending.

So before we let you go, what do you think the lever will be? Because I feel like in the last running season we did learn that the pricing power of companies had kind of hit its max. Then the levers to keep the margins going, what is it going to be?

Well?

I think on the intermediate longer term, investors have to realize that margins are at or close to all time highs, and in terms of growing that and sustaining that gets to be pretty tough. But companies will be looking at you know, is there is somewhat of an easing end because there was a lot.

Of pressure on.

Employee employee salaries and overall income and the hiring. You've seen employment come into better balance, So hopefully people won't be as pressure to offer substantial signing bonuses and.

Increases, although it would be.

Nice from a consumer standpoint to keep at least keep pace with where the inflation rate is. So companies will be parsing every item they have in terms of looking at cost.

Efficiencies and where they can save a buck there.

But it'll be tough and as investors, we're going to have to adjust to the fact that margins can't grow to the moon anymore than stock price isn't necessarily.

Can Okay, Cal, thank you so much for joining us. Really appreciate a Cowurchlafe. She's a chief investment officer PIMO Family Office, and we appreciate getting some of our thoughts.

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President Joe Biden has gained some ground against Republican Donald Trump in six and seven key swing states. So we want to get more on this with Real Economy reporter for Bloomberg, Mark Niquette. He's joining us on this poll. What are the findings that you have?

Well, the poll shows it's a monthly tracking poll that we've been doing since October, and it shows that Trump's still doing pretty well in Georgia, Arizona, Nevada.

But the most significant findings is that.

Biden has improved his standing in Michigan, Wisconsin, and Pennsylvania, sort of the blue Wall. I think these states are going to decide the election, and he needs to win these states if he's going to get a second term. In Wisconsin, Biden now holds a one point lead over Trump after trailing him by four points in February. In Pennsylvania, the candidates are tied after Trump had a six point lead in February, and they're also tied in Michigan.

Any common denominator here, Marcus to what might be driving some of these poll numbers.

Well, the timing of the poll was interesting.

It was conducted March eighth through the fifteenth in the swing states, and that March eighth is.

A day after Biden's State of the Union address, which was.

Pretty fiery and I think, you know, alleviated some Democratic concerns about the president's age and his fitness.

To take on Trump a second time in a rematch. And it's also.

Midway about March twelfth is Super Tuesday, when both Biden and Trump sort of si clinch the respective nominations. They got enough delegates to clinch, So it kind of really made it a binary choice. You know, we knew this was going to be the out, but I think the Democrats in particular, we're thinking that until it was really clear in voters minds that this was going to be a rematch and it was Trump or Biden, that's their choices, that Biden was not going to do as well in

Are voters voting because they like the candidates or because they don't like the other one?

Well?

Interestingly, our polls showed that in the case of Trump, most of the support is coming from.

People who like Trump. Only three and ten Trump supporters said they were voting for Trump because they didn't like Biden. There essentially voting against Biden. But the case was different for Biden.

About half the supporters of Biden's and they were voting for the president essentially as a vote against Trump.

They didn't want to see Trump get back into the White House.

There was even more pronounced in Wisconsin, were like six and ten of the supporters of Biden, we're voting for him.

Because they were voting against.

Trumpet to that point, are those voters more sticky or not? Like, is the anti vote stickier than the pro vote?

What is?

What we're going to find out is what's more motivating, right, support for your candidate or desire not to see the other candidate win. You know, I think Trump has benefited over time from enthusiastic support from his base and base turning out to support for him. But you know, the negative feeling can also be a very strong motivating factor and could drive folks to the polls, specifically to vote against Donald Trump because they don't want to see him back in the lighthouse.

We're going to find out what's more motivating, you know, voting for your guy or voting against the other guy?

What is a polling show about some of these swing voters, the more independent folks. What I've been told, or we've been told by a lot of pollsters is that the core Trump folks are going to stay with Trump no matter what, and probably something similar on the Democratic side.

It's the folks in the middle. What do we know now?

I think we still don't know exactly how those folks are going to play out, because we're We're particularly interested in how suburban voters, particularly suburban women, are going to vote in this election, and we've seen even in our tracking poll, you know, changes in that subgroup, you know, particularly in views about the economy. So I think we have to get closer to the election to really see how these folks are going to play out, and it's

And frankly, you know how motivated they are to turn out because you know, particularly but.

Biden's going to win these these swing states, you know, particularly Wisconsin, Pennsylvania, and Michigan, He's going to need a very strong turnout in democratic cities.

MH.

Do what voters care about? Did that change Jital month to month?

Interestingly, we saw a little bit of a decline in the importance of the economy as a top issue for voters and an increase in immigration as a top issue, So sort of a listening of the economy and the more heightened epsis on immigration, which presumably would be bad news for President Biden.

But we also saw.

Folks who trust Trump more than Biden on the economy, that that number go down a little bit. And also the folks who feel they were better off financially under Trump than Biden also that also go down a little bit. So we're seeing a little bit of softening of the advantage that Trump had on the economy and in particular how voters feel about the economy.

Mark thirty seconds, how about the age issue. Both sides are playing that up at the expense of the other.

Yeah, exactly.

And I think, you know, the one takeaway from this pole is, you know, Biden has sort of helped in that regard, I think primarily because of the State of the Union address.

You know, age is still going to give a concern. It will be a concern I think, you know, up into the election.

But if nothing else, Democrats, i think, feel a little more comfortable that it's not going to be a decisive issue that's going to sing Biden's campaign.

All right, great stuff, Really appreciate it. Thank you very much. We look forward to the next poll as well. Mark nqutte, he's Bloomberg Real Economy reporter joining us in the latest Morning Console poll. I want to see what apparently in the poll too, Nikki Haley. Voters seemed to be moving towards Trump, which I found to be quite interesting because like, why I don't But then is that like an anti Biden thing versus a true Trump, a pro Trump thing.

You know, it's interesting.

We'll have to see, we'll we get closer to the election to see how some of these things start breaking.

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