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One of the socks we've been talking about today, Micron Technology sales numbers really impressive. I think some folks are concerned about some of the spending that Micron was talking about on their earnings conference call. So let's get right to it. The stock is down three percent today, but it is just been a really strong performer over the last periods. Let's check in with somebody who does this
stuff for a living. Jake Silverman, Bloomberg Intelligence Semiconductor analyst. Jake, what was your takeaway from Micron's earnings?
Yeah? Thanks, I would say that I actually think it's not really the spending that is concerning investors. I think really what's going on with Micron is more so focus on where the cycle is at. We've seen now a couple of quarters of very aggressive price increases. For the May quartermanded quarter, We're going to see continued very strong
double digit price and growth. And so what I really think is on the top of investors' minds is when does this cycle and how sustainable are these margins Because if I think about capex, just because capex is increasing, they need to increase capex in order to meet the high levels of demand because there's still a very strong supply and demand imbalance that we're seeing. So AI is
really the major driver for that. It's the major tail and if they're unable to match spending, then they're not going to be able to meet the demand of their customers.
Has the company shed any light on how high they think memory chip prices will go or at least stay, because this has huge group percussions for manufacturers of laptops and everything else that needs memory chips because all the memory chip makers are to is he putting together a high bandwid memory chips.
Yeah, they don't really give a lot of details in terms of what their view on pricing is. Ultimately, our take is more so that we're probably going to see the peak of the pricing increases on a quarter to quarter basis. That doesn't mean that pricing won't continue to
increase at a somewhat more modest rate. But going back to actually what I was talking about earlier with capital spending, the ability to actually increase supply is going to be a really important factor here, both in terms of actually
how pricing moves around right higher or lower. But because there's actually a constraint in the ability to put up additional clean room space, new fab space, there's not going to be a lot of additional supply in the next twelve to fifteen months or until the next twelve to
fifteen months. So as a result, we think pricing still has a few more legs to go again, it's really just more and so that we think pricing on a sequential basis, on a monthly basis, quarterly basis, will be a lot more modest in terms of the increases than what we've seen before.
Jake, who does Micron really compete against day to day today and then in a couple of years going forward. Is it the in videos of the world. Who do they really compete against?
No, in videos they're one of their biggest customers, but I think it was their biggest customer last quarter, and a lot of that for as you mentioned high bandwidth memory, really their competition is Samsung. It's s k Heinex, and then some extent sand Disc, Although DRAM is becoming an increasingly large portion of their business, of sand Disc really only competes with about twenty percent of their business.
So in that regard, Micron has a lot of pricing power. What advantages does Micron offer over a Samsung or an s k Heinex.
Well, I'd say that advantages are tough because they build to spec for the jed X standard. Micron they do also build to in video specs for high bandwidth memory. One of the things though, to keep in mind is that the memory market, as I was talking about the
cycle before, it's very cyclical. So really the key here is how much cost can they what's the better cost profile that they can drive relative to their competition, while also maintaining that R and D spend to keep up with the increasing demand of their customers, in Nvidia being one of them, but also a lot of other hyperscalers who need high bandwidth memory HBM three E but now
we're moving to HBM force. Those standards keep going up, so their ability to compete on cost, their ability to compete on things like pin speed that help with bandwidth, their ability to compete with lower power consumption for their products. Those are really the keys. But again it is somewhat commodity like market for the products that aren't high bandwidth memory, so it really is competing on costs and the economics of their business.
Hey, Jake, about thirty seconds left here. I'm just looking at your research and note customer agreements are now extending out up to five years in some cases. That seems really long.
Talk to us about that, Yeah, very unprecedent. The company hasn't given us a lot of details. There's not really a lot to say unfortunately right now. But it does seem like these agreements are different than the ltas we saw just a few years ago during the last downturn or upcycle that ended up in the downturn. As things tend to go with Micron. So really, what I would say is that this may be something that could produce some of the cyclicality going forward. We don't expect all
agreements to go out five years. Some might go one year, two year, three years. It's going to vary a lot by the customers to volume what the products they're requiring are. Stay with us.
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We still got a lot of companies reporting here. Now we're starting to hear from a lot of the restaurant companies. Dardan's coming up here, so we want to check out with Michael Halen. Michael Halen, he covers all the restaurant companies for Bloomberg Intelligency space down there in Princeton. One of the big ones darted, I think, is about the report here, mister Haylein's what are you looking for there?
Mike?
Yeah. Darden reported this morning. It was it was a strong quarter on the top line. So despite all of the fold weather and snow they had mentioned, you know, fort of their stores had been closed at some point during the quarter. Despite all that, they still were able to put up four percent seamstre sales comp The problem with the with the report was that they missed on the bottom line. So despite all of you know, the traffic they were able to drive into their stores. You know,
they didn't really see the operational leverage from it. Right, Beef prices were a big headwind obviously in the quarter for Longhorn, which is which is their second largest chain.
So how is the company planning to tackle that? Because I'm not sure that beef prices are going to come down anytime soon. This is going to be a assistant costs headwind for them.
Well, you know, the entire commodity complex is starting to become a real concern for these restaurant chains, and that's why we've seen them kind of reverse their strong gains of the previous three months. But yeah, so what they're going to do is raise prices. And they feel that they can because they have not raised prices much over the you know, post pandemic period, right, so they've underpriced competitors, they've underpriced you know, food away from home inflation, right,
So they think they have some room. But you know, if we continue to see you know, elevated gasoline prices, if we see a prolonged conflict in the Middle East, you know, it's really going to weigh on restaurants spending. So you know, we think they're going to have to be careful raising prices. But It's it's an interesting time right now. There's a lot of crosswinds, right, Like, you know, they are seeing people spend more when they get their
refund checks. Refund checks are ten to eleven percent higher, right But unfortunately the spike and gas lean prices up thirty percent plus now in just a few weeks is going to eat into some of that spending, you know, excuse the pun, you know, and then just overall inflation is going to cause prices to go higher, which is not a good situation for you know, stacklation is not a good situation for restaurant consumers. We saw that in
the stocks performances last year. Right When people's budgets get pinched, they spend less at restaurants, margins get squeezed for the restaurants. It's it's just a tough climate to operate.
In, Mike. What are your companies telling me about labor, labor availability, sustainability, How's how's the labor side of the creation because that's a big part of their calls structure as well.
Yeah, labor's been okay. There's a lot of the companies we cover are seeing a lot less turnover. Wage inflation's been you know, it looks like about three for some of the companies that have reported recently versus you know this four percent to five percent range that we've seen since about twenty twenty. So the labor piece of the equation has definitely improved a bit for the companies in our sector.
What will you be listening for from the other restaurants that report? Are we going to see similar themes play out for them?
Yeah? So Dardens is a little bit Darden's a little bit off cycle. So uh, They're are the first ones to report, you know, almost into this next cycle, right, so because their quarter ended late February, right, so they
we have they're giving us an early read. So when our other names report, right, we've gotten a feel for what the first quarter was, and we think it will be as like stronger, pretty strong considering all of the winter weather, considering the snow, still putting up pretty solid same source sales, you know, over four percent here for Darden.
You know, a month ago, the question was you know, really about the top line and how you know and how much better things we're looking and how much people were going to be spending in their restaurants, how much of those tax refund checks, we're going to get spent at restaurants. But now I think the questions are going to shift more to the margin side. Right, Like this, higher guess Lian prices mean commodias are higher for longer. Right, Stay with us.
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All right, let's stay with this global theme because FedEx reported results and clearly it's not just parometer for the US economy, but really for the global economy at large. Lee Cosco is our senior transport, logistics and shipping analysts, and he is joining us to give us a preview of what FedEx is likely to say. So FedEx, Lee, when it comes to FedEx, they have their own issues, right, They've been trying to turn things around, overhaul the business.
How much of the results reflect that effort versus what's happening globally?
Yeah, I mean, we all have our own issues, but FedEx certainly does have a number of them, and you know, they've been busy trying to restructure their European business and you know, they're kind of combining their ground and express networks and they're kind of going through a transformation right now, and they're really hoping that they'll come out of this transformation a more nimble parcel provider that can really take advantage of some of the strong B to B markets
that they're going after and higher margin B two C business also as well. You know, volume looks like it's probably going to grow. During the earnings, We're not really expecting that much new news because they just had an investor day the other month, but we do expect to get a lot more color about what's going on in the Middle East and how that's going to impact FedEx and it's and it's business going forward. So that's what
you know, I'm most interested to hear about. You know, the company, like I said, does have a large European operation. You know, the Middle East has become a huge hub for freight between Europe and Asia and that has been dislocated, uh and so they're obviously dealing with higher costs associated with some of that business. There's lost volumes that will be involved because the area is not safe to fly into.
So we expect to get an update on how the you know, the conflict the Middle East will unfold for carriers like a FedEx.
So what's FedEx saying today about just the their business in general in terms of volumes and things like that. I mean, because it's such a bell weather for many parts of the economy, as you well know what a saying just about core fundamental business trends.
Yeah, so you know, FedEx has two main businesses. The business that we all probably know when you get something at your doorstep, you know, letters going to lawyer's offices, and they also have a less than truckload business. They're the largest LTL carrier in the United States. They're actually planning to spin that business. I would spin that out there. They are spinning that out. We're they're doing an analyst day next month. We're excited to attend that and find
out more. But you know, that business has been suffering significantly because of the weak industrial economy. I don't need to tell you the ism has been a contraction territory a lot more than an expansion territory over the last two and a half years, and that's really weighing on that business. But you know, looking pivoting towards you know, they're a larger business, their parcel business. That business has been okay, it's growing, Volumes are growing by load of
mid single digits. They're getting pricing and load of mid single digits. The problem that they're facing right now is costs, and they're trying to you know, kind of if you will, reduce their overall cost curve to help, you know, drive
better margins going forward. And some of the things that you know I kind of alluded to earlier, you know, whether it's restructuring their air network, whether it's combining their ground and air network, these things will benefit the company a in a better demand environment globally, and B it's going to take time for those benefits to come down to the bottom line.
So Lee, we have FedEx reporting and then UPS will report probably in about another five weeks or so. How much of what FedEx tells us, especially when it relates to global trends, can be applied to UPS, I.
Think a lot. You know, they're both very very similar, they're both going after similar growth businesses. They both want to get more into healthcare logistics, which just tends to be more profitable. They obviously have their fa anger on the pulse of the consumer. UPS is tied to a little more to companies like Amazon. You know, they are trying to wind down that business, but you know they're
more tied to it. There are some differences, but I think there's more similarities than there are differences about you know, what it's going to tell us about the overall economy.
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We had a fad day yesterday.
We did.
Yeah, I mean, in all the news flow, it kind of gets dround out.
A little bit. Yeah, And you know, coming into this, I was just talking with Michael McKee. He was saying that for the most part he didn't think it would be anything big, you know, a couple of weeks ago. Certainly we didn't think it would be anything big, but some news was made. Certainly j Pal making clear that he is in no rush or the committee and no rush to cut interest rates. Ira Jersey is our Bloomberg
Intelligence Chief US interest rate Strategies. He talks to us about the FED, about the economy, about rates and where they're headed. What surprised you the most from yesterday's news conference.
That it was probably the least important of the seventeenth central bank meetings this week. That's you know, the Bank of England meeting obviously is what's really royal the rates market today. Yeah, So I don't know if it was surprising, but I think the clarity that you know, Jay Powell said that he intends on staying on until Kevin Moorsh is confirmed by the Senate. I think that that was something that you know, most people we had speculated about,
but he can. You know, the fact that he confirmed that I think is important. Will that have an effect on you know, President Trump and how what's his reaction going to be to that? I think is a an open question and clearly there's going to be a lot of debate about it. And then the other is his comment and which really is what to set the markets?
So saying that basically oil was going to determine whether or not they cut interest rates again, right, if oil prices continued to go higher, that they probably wouldn't wouldn't cut again. And that's that's where you saw the bear steepening the yield curve, so two year yields going up much faster than longer maturity debt.
You mentioned the Bank of England is the call there ire that they held rates the same, but they said, hey, we'll raise them if inflation gets warrant.
Well, they basically implied fifty bases points of interest rate hikes, which you know, the market was pricing in for some chance of n interest rate hike over the next twelve months or so, but two really set the market off. That's why you know, currently the two year two year guilt so two year GBP bonds are hired by about thirty bases points, like twenty nine basis points. I think at the moment they were a little bit higher earlier today. And that's really is what's royal the entire US market.
When I came in and I sat down in my terminal this morning, two year yields were off US two year yields were off seventeen basis points. You know, now we're only off you know, four and this happens pretty regularly right where you'll see that effectively the tail wagging the dog. Right. Obviously, US treasuries are the global benchmark
for interest rates. That's still the case. But when you have something that happens in Japan or something that happens in the UK that really sets off the developed market interest rate complex that filters into US treasuries overnight because people just sell risk and sell whatever's liquid and they can sell. But then once you get into US trading hours, then you know, I don't want to say cooler heads, but kind of more rational heads prevail at that point.
So how are you rethinking everything now? Given what Palace said, given what we heard from the BOE, the ECB h this morning as well.
Yeah, you know, we had thought that the FED would probably cut interest rates to just below three percent. Just the way that we were thinking about it was, you know, real yields. The FED things that the real funds rate should be about one hundred bases points plus or mind us a little bit. So if inflation is going to be two two and a quarter, which is what we were implying for the pe to flator for your end, that they would be able to cut interest rates down
to three percent more or less. Well, guess what. The inflation situation's far different now than it was before. I don't think they're going to hike because they don't want to necessarily be the impetus for a major recession. But I think that they're going to be much much more cautious now in their easing campaign. And if they ease, what would cause them to ease At this point it has to be the job market, right. You have to see like negative one hundred thousand job prints for two
or three months. That would certainly scare them and make them probably rethink about a cut again. But when inflation expectations arising as dramatically as they have the last three weeks, that's going to let them take their foot off the gases a little bit.
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