Qualcomm's Dual Business Model Remains A Risk: Ovide

percent today after a nearly eleven percent tumble yesterday. A question is whether their business model is being fundamentally challenged right now in court and whether basically, uh, they have an existential threat that is looming down on them. I'm sure overday joining us here at our Bloomberg Interactive Broker Studios Technology calumnists with Bloomberg Opinion. So just lay out the issue here. There was a core case that was particularly punitive why Yes. So this was a court case

that the US Federal Trade Mission brought. It was an antitrust case and then um overnight on Tuesday, uh U S District Court judge ruled that basically, um, the way that qualcomn has conducted business is in fact a violation of antitrust law. The way that the company basically, if you want Qualcomms chips, you need to license a set of of patent technologies from the company. So there's no license,

no chips. And also, even if you're not using qualcoms chips, you still need to pay the company for these kind of collection of patents that are really essential to the functioning of modern smartphones and other computing devices. And the judge that that's not legal. Well, I had to admit I was very confused by the judges ruling today and surprised,

and I guess so was the market. The stock sold off so much yesterday because when they had their Apple resolution um a couple of weeks ago, the stock rallied and I thought, Okay, that's it, the qual tom story. It's off to the races. But there was still the FTC issue out there, So this is something that's still fundamentally on the radar for this company. Yes, and frankly

I thought the same thing about the Apple case. So the Apple brought suit against qualcom over almost exactly the same issues that the judge ruled on this week, and so you're right. When Qualcom and Apple reached a legal settlement, I think a lot of investors thought, well, that's behind them. But look, this issue about Qualcom's dual sided business model, the selling of chips and the licensing of its patents,

and the links between them. It's been an issue over and over and over again and repeated litigation, in repeated regulatory um investigations and finds all over the world. It is kind of a fundamental aspect of Qualcoms business, but it's also under constant assault. Well, and so I guess that then the larger question here is what is Qualcom

as a business without the stream of patent revenues. Because you were saying, we were speaking earlier this morning, that those patent revenues account for more than fifty percent of the firm's income. Well, I guess we may see what what Qualcom looks like if if you sort of untangle the two halves of the company's business. But we should say that, look, this may not be kind of the nuclear option in this in this legal ruling that Qualcom

hasn't disagrees with the judges' decision. Of course, the company has asked for an expedited appeal. I assume the litigation is going to the appeal process is going to take many years to resolve. They are there may be ways for Qualcom to sort of adjust its relationships with customers in a way that doesn't mean dumping one or or or the other half of its business model. So there could be some kind of middle ground that is not

kind of Qualcom blowing up how it does business. Is there any chance for a settlement or the fact or have we just passed that point now? Between the you know Qualcom in the FTC, I I mean, I think the f you know since the FTC one this case, I can't. I mean, I don't know, is the short answer. But I find it hard to believe there would be

a settlement. But again, there could be um some kind of resolution assuming the judges judges decision holds up on appeal, that falls short of Qualcom having to blow up everything and subject itself to government scrutiny, government oversight for seven years. So we were talking about how Apple had their lawsuit against Qualcom. Who is the biggest sort of I don't want to use the word victims since that's loaded, But who's on the other side of some of these suits.

Who's most angry, Well, certainly the customers, including UM, including smartphone makers like Samsung and Apple and Huawei. The latter two had various litigation pending against Qualcom. And look, I think what the FTC argued in its litigation was that the ultimate victim is the competitiveness of of the US chip industry. That the judge agreed that the way the Qualcom does bus nous of the way was able to sort of leverage its power in the chip market to

sort of overcharge basically for its patents. It forced other companies either out of business, other potential competitors to Qualcom force them out of business, or kind of hindered their ability to compete. So ultimately, you know, the competitive the competitiveness of US technology may have been the ultimate victim here. And one of the things I remember, if I can think all the way back to the Apple settlement just a few weeks ago, Uh, they were hailing it as

you know, this kind of pro five G or pro technology. UM. Is that an argument you think Qualcom is gonna make here as they try to, you know, fight back against this ruling. Yeah, I think the five G argument is going to be very interesting. So we saw last year the US government stepped into essentially block Broadcoms proposed um takeover offer of Qualcom that would have been a hundred

billion dollar plus deal, and the government. The US government's reasoning was, if Broadcom succeeds in this takeover, Qualcom is gonna be gutted. They're gonna slash costs, and that's gonna hurt qual Comms competitiveness in five G, this next generation of wireless standard that is considered sort of this essential national security priority, which is weird because I mean, look, it's a technology standard, but the US government and the Chinese government to have now basically made five G this

political football. And so one thing that I wonder is will the US government step in uh in this litigation that the FTC one and basically seek to blunt it against citing the ability of Qualcom to remain competitive in five G. I have to wonder what qual Comms side of this is, because I hear what you're saying, and I thought that it was a really salient comment that you made. The competitiveness of US technology may have been

the biggest victim here. What does Qualcomms say to that what qual Comms argument is the opposite that it says, look that their business model is not unusual, that the chip industry is competitive, and if you look at some some estimates of market share, Qualcom is losing some market share,

which shows that there is competition out there. And Qualcom's basic fundamental point is, look the way that we have set up our business model, including this patent licensing stream, we plow that back into tens of billions of dollars in research and development spending to come up with the next big technologies in the future. And look, it is true that particularly in areas around cellular internet technology, Qualcom has been a leader, and there would be no smartphone

industry without Qualcom. It's interesting. I think if I'm a guess, if I'm a Qualcom investor, I just have to live with this litigation risk going forward. I guess kind of the business model just licensing technology, and you're always gonna have that issue. I think, are you're gonna bett in the Trump put with five G and that I think it's really going to be a big bet underpitting some people who might dive in and buy the shares as they fall to day. Yeah. Interesting share of a day.

Thank you so much for joining us once again. Shearer's Technology Comms for Bloomberg Opinion. Joining us here in our Bloomberg Interactive Broker studio, Paul. We like to laugh when company after company blames the weather for disappointing earnings. But it turns out they may not have that same excuse going forward, at least if Cameron Clayton has anything to do with it. He joins us here in our Blooberator Active broker studios. He's the general manager for the IBM

Wattson Media and Weather Unit with IBM and Cameron. Can you just first start by how IBM and the Weather Channel are using artificial intelligence to help these executives get away from just simply blaming the whims of weather. Well, thanks for having me, Watson. An artificial intelligence is really about a big data and so just give you a sense of the scale of the data. So on Wednesday, uh, we had thirty four billion data requests of our infrastructure

asking about weather. And the reason that number is so large is because of all the tornadic activity we had you know this week in the in the Midwest. But when there is that much data being generated every single day. The only way to sort of get insights out of that data to help people make better decisions, to help integrate into their supply chain, et cetera, is using artificial intelligence.

And so that's where Watson has come to bear and and it's just something that wouldn't be possible without official intelligence. Al Right, So let's talk about this weather signals product. What is it and who are you trying to sell it to? I guess yeah, So we're basically selling it to prizes around the world by industry, and so whether you're a retailer trying to sell inventory, So I'll use home depot as an example, right, and and the torn

netic activity this week. Uh, they've got inventory of top holands, but they might be in Los Angeles or in Florida. They're not in Kansas and Oklahoma where they need to be, and so we can tell them a hit of time where to deploy their stock. Uh. Similarly, you know, we help drive consumption, right, so weeks in advance, we can say, you know, beer sales are going to increase by when weather conditions are X and so that ends up integrating

into all kinds of companies into the supply chain. For the logistics as well as the stock but also how to staff your company. Right, So I guess that one thing that as you talk sort of surprises to me. It surprises me. How is this so much different than looking at the weather and saying, oh, there's going to be a big storm, it's going to be forecast to come. Everyone's going to go to the local grocery store and

buy off, you know, everything that they possibly can. I mean, haven't companies been able to do that forever or not forever, but for you know decades. So companies have had access to weather data from US and others for you know, decades. But this is really about making very specific recommendations of decisions that they should make specifically for their business. And so it integrates into the different software they use. Already in retails, a lot of retailers use Tableau as a

as a software tool. Uh, it integrates into that and it makes specific recommendations of exactly what to do. How many people should you have come into work in your office tomorrow, how many people should not come to work on Saturday? Um, and so you know, use this weekend is a long weekend for for travel, for example, So we will actually in advance, help airlines change their flights a jules to accommodate the what we know is an increase in traffic UH that's coming. Tie that to the

weather data and make it very prescriptive. Right, this flight going out of this airport to this destination needs to be adjusted by thirty minutes, you know, a week or two in advance. So give us a sense that this weather signals product that you're talking about that incorporates AI, it's a relatively new product for you guys. What's been the uptake And just give us some examples of maybe some companies who who have you know, chosen go this

round and kind of what they use it for specifically. Yeah, so you know, uh, the biggest retailers uh the probably shouldn't name, but uh essentially using it today. Uh. And so retail is probably the largest category for where the signals specifically right now. The second big category is aviation, right, so they're adding it to existing solutions that we provide

an aviation uh. And then you know, we're also bringing it all the way up all the way down the supply chain, if you like, uh, to agriculture as well. And so we're starting to see large scale farms UH using it to help make decisions on the farm UH

in addition to retailers and transportation company. It's so interesting to me because most recently you're a chief executive officer and general manager of the Weather Company UH and including Weather Underground, which I check every morning when I have to take the kids to school and have to figure

out how painful it's going to be. And I guess that I'm wondering whether you see the future of weather forecasts as being part of this is a sort of generating revenue from actually helping the prescriptive to businesses UH in a way that perhaps is different than just looking

at the hourly weather forecast. What I think one of the one of the things that's you know, interesting to me and I asked about all the time, is accuracy, right, And so fifteen years ago, where the forecasting was about a not much better than a coin flip, it's about accuracy. Jump forward to today, it's about accurate. In the last year with the accuracy is improved more than in ten

years prior. AI is a huge part of that, and so we hope that we're gonna be able to take these recommendations for decisions all the way down to individuals like you write is literal leagu practice is going to be canceled. And you know this in the morning. You don't find out thirty minutes before you You have to adjust your schedule h and every decision in between. Cameron Clayton, thanks so much for joining us. Cameron's a general manager IBM Watson Media and Weather. Joining us here in our

Bloomberg Interactive Broker studio. Well, I really can't get over the statistics that this statistic that automakers globally have it announced at least thirty eight thousand job cuts in the past six months, and I really I wonder what this says about auto sales going forward and how much they are poised to decline. Joining us now, Michelle Krabs, executive analyst at auto trader dot Com based in Detroit. Michelle, thank you so much for joining us. Let's start there.

How much do you expect auto sales to decline going forward? And we're talking on a global basis, Um, Well, we expect them to slip a little bit. We do not expect any kind of collapse in the market, but we do expect it to edge downward. You know, We've been on a great run here, almost ten years of a year over year increases, and you know it's the market's kind of peaked. We expect sales for in the US to be down two or three percent. So, Michelle, what's

the impact. I know it's probably early, but what are you hearing from some of the manufacturers and some of the dealers that you talk with about terror of It seemed to be on again, off again for the automobile sector. Well, yes, you know, I think everyone would like certainty and they

would like certainty that there there are no terroriffs. Um, we see interesting patterns when there's a lot of talk leading up to it, like last summer, we saw a little bit of stockpiling of inventory, stockpiling of used cars by dealers as they thought that tariffs would happen, and then they didn't. And again here we are in a waiting period for six months, and we if it really becomes looks like they will happen, we expect we'll see some more of that stockpiling of inventory, both new and

used vehicles going forward. So Memorial Day weekend is definitely a big one for selling cars. And I'm just wondering what kind of discounts you're expecting this year because this has sort of been one big point of contention for the big automakers. How much do you give incentives to people to get in the door versus give up profits and rather than just sort of sell things at full price your right. Memorial Day weekend traditionally has been a

big sales lift weekend for automakers. We don't think it will be as much so this year because of that overall decline in the market and the fact that car prices are at their highest level. UM, auto loan rates are at a nine year high, and UM we are not seeing a lot of uh laboring on of incentives. They're very targeted, and automakers have been showing a lot of restraint in terms of going for profit versus incentives. So there aren't going to be fabulous deals out there,

uh for consumers. So we'll see how the weekend ends up. So, Michelle, talk to us a little bit about the used car market. I'm always surprised when I see, like you know, the number of like sixty or six people are leaning towards a used car versus a new car. What's the status of that market? Well, it is an interesting market. We focus all our energy on the new car market, which is about seventeen million sales a year. Typically used car sales are almost four million every year and a pretty

consistent UM. There's a lot of interest in used cars

for some of the reasons I mentioned before. New car prices are at record highs uh and there are a huge number of fabulous used cars because we had record leasing, those cars are coming back onto the used car market, and there's a richer mix of the kinds of vehicles, so there's not only cars which used to be the only thing that was leased released and then UH sport utili vehicles which are really in favor with consumers and and a hugely discounted prices because they're three years old.

That's what I was going to ask, is the used car values. I know this was something that was really UH sinking Hurts and Avis a couple of years ago because of the glut of leasing and then the cars that went into the used car market. I'm just wondering whether we've seen a real firming up there of those

resale values. Yes, we have and UH and interestingly, you know, cars are kind of about a favor on the new car side, uh, and so we've seen a lot of discount there, but if you look at the used car side, there's that used car prices I've actually risen higher because there's such high demand. And of course some of the automakers have gotten out of the traditional car business and so there's uh, there's less availability there, so tremendous interest

and use cars and that keeps prices strong. So, Michelle, you mentioned that the you know, the market has really moved, certainly in the US and new car markets and trucks and SUVs, and UM, it give us a sense of how sensitive those sales are too. Changes in gasoline prices were just noting earlier today that oil is down about five percent today, So it's kind of fluctuating. But boy, it just seems like the U s consumers trucks and SUVs. But that's not just the US. Globally, the shift is

more towards sport utility vehicles. That's true in China, that's true true in uh Europe as well. UM. I think the automakers don't get enough credit that they have done an amazing job of improving fuel economy of sport utility vehicles. It used to be that was the reason people didn't

buy them. That's kind of gone away. There's there's not this huge penalty for in terms of fuel price at fuel efficiency, and yet there's a ton of other advantage of you know, various combinations of passengers and cargo and that higher seating position, which is what everybody likes because they feel safer, they can see better, So it offsets the advantages understood. Michelle Krebs, thanks so much for joining us.

Michelle's executive analyst at auto trader dot com based in Detroit. Well, the FED seemingly has navigated the US economy to what can be described as perhaps a soft landing with modest economic growth and limited inflation. To get some insight as to the FEDS thinking, returned to Danielle di Martino Booth. Danielle CEO and director of Intelligence for Quill Intelligence. She's also a former advisor that Dallas Fed to Reserve, and she's a Bloomberg opinion columnist. Danielle, thanks so much for

being with us. What is your sense of what you think the FED will do next? I'm looking at the w I RP function and we just chatted about briefly before again a seventy nine, a chance for a rate rate cut by the end of the year. Do you agree with that, Well, it doesn't really matter if I agree with it. What matters is FED history, and FED history tells us really anytime you get over the line, they really start talking about whatever direction it's going to be,

whether it's it's going to be easy or tightening. Once you get past sixty probability, it's kind of in the bag. So I would be surprised if between here and blackout, before the June fo MC, we didn't start to see a little bit more descent in terms of FED speak, because they have been so consistent across the entire committee they've had. They've all been towing the Clarita line about

we're gonna let inflation run too hot. Right now, the market is telling us that there's there's nothing hot about it. Inflation needs a pachmina. It's running so cold, and it's looking more and more like and I think the bond market is telling us break evens are telling us that this is not transient and that the core PC is going to be pulled down further. So let's dig into that issue. Because according to the minutes that came out

yesterday of the last for MC meeting. It does seem like members do believe that this is a transient sort of dipping inflation in a weakening Why does the market disagree. Well, it's interesting because not all participants on the Federal Open Market Committee agree. There was there's some fine print in the minutes yesterday that said several participants were concerned that inflation was not transitory, and then in fact CORPC was going to be pulled lower. But decoding FETE speak, participants

mean non voting federals or of district presidents. So again, I think that the Fed wants for inflation to be transitory, but wanting and getting are two different things. When you start to see things like this morning's market composite data, it's a composite. It's at fifty point nine new orders in the manufacturing went negative for the first time. I mean, that's about the clearest signal you can get. We'll see

if it's validated when the m numbers hit um. But if you start to see bleeding from this kind of isolated weakness that we've had in the factory sector sector into services, you will have a downward poll on that core PC. Let's talk about I want to talk about one of your colums that you wrote just recently about the consumers, because the consumers such an obviously a big part of the economy, a big part of the growth story, um, but you arguing that perhaps the consumer isn't as strong

as maybe we're led to believe. What are your thoughts on that? Well, I think what you need to do is to look at the composition of jobs that have been created so last October, for example, the vast preponderance of jobs that we're in high paying industries, and by time we rolled around to the April data, you know, we're seeing sixty pc of the jobs being created in low paying industries. So it's not going to show up

yet in something like initial jobless claims. Employers have worked so hard to source skilled workers that they're holding onto them for dear life. But we're seeing weakness in the number of hours that are worked. We're seeing a weakening trend and temporary employment. And again, wage inflation has started to come back in. As opposed to what most economists were predicting, say six months ago, that we were finally seeing traction and wage inflation. That is not the case.

But couldn't you argue, if you look at the consumers balance, she looks pretty good. Interest payments are still fairly low. The actual amount of debt relative to GDP hasn't climbed that much. When you talk about the consumer, this isn't a bad picture. And yes, we have seen dilinguacies take up with credit card and auto loans, but not necessarily to the extent where you start to get really concerned

about something. Couldn't you say this has been a very unusual economic cycle, but one that is actually allowed things to grow and to possibly soften at a slow and steady pace. That's kind of healthy. It has been. But I tend to think about the delta and the rate at which servicing household credit has come up is extremely problematic.

Deutsche Banks done some good work on this, Torsten slock And and right now you're getting to where households are spending so much more of their income to service their debt, and that's coming so quickly that that is becoming It's not the absolute level of household debt, it's it's it's it's the rate of which the increases is happening. I have to wonder, though, how much is this an income

inequality story? Because how much is this uh the very low end incurring debt and then sort of trying to cycle and make payments versus an average story, a story of averages. Well, you know, that's a good point, but I would I would go back to a the the economy that we have today, um and that in many ways.

Moodies did an interesting study at the end of last year that said initial jobless claims are understated by about because we have so many people who were self employed, We have so many people who who drive for a living, that particular area the self employed is getting crushed right now. But if you work for yourself a, you're not gonna put an ad out to hire yourself and be you're

not going to file unemployment insurance against yourself. So there's an element I think that's not being picked up in the averages right now that's harder to see, harder to discern. And you put on top of that the tax season that we've just come through and the fact that I think a lot of middle income American families ended up not getting a refund but actually having to pay taxes that was unexpected as well. We've seen what a court of American families are not have have decided against taking

a vacation this summer. Those types of anecdotes will show up in the data. I mean, you're not canceling the trip to Disney for no reason unless the taxes you paid that you weren't expecting to pay were in fact your vacation fund. Daniel, we're seeing wage inflation over the last couple of reports of you know, low three percent kind of range. To me, that seems low given where I think we're really full of employment. What do you think I think wage inflation should be much hotter than

what it is. Uh. And in fact, we've seen average weekly earnings. I prefer to steer clear of average hourly earnings because I don't take home and hours pay. I take them a paycheck which I earn over a weekly period. That particular number, again, since October, has shown serious deterioration

and weakening. So thank you so much for being here. Honestly, you raised really good points, and especially right now as we look at the market activity with a nearly eight chance of a rate cut being priced into markets, a real disagreement right now between markets and FED participants. Where you've got fed saying you know what, inflation is just simply cooling off as a temporary factor. The market saying we're not buying it. Danielle di Martino Booth. She, of course,

is a Bloomberg opinion columnist. She's chief executive officer of Quill Intelligence, former advisor to the Dallas Fed. Joining us here in our Bloomberg Interactive Broker's Studios. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa abram Woit's I'm on Twitter at Lisa abram

woits one before the podcast. You can always catch us worldwide on Bloomberg Radio.