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[0:15]This is Bloomberg Tech coming up, Microsoft and Open AI have agreed to drop exclusivity rights on AI models opening the doors for rivals to make new deals. Plus China blocks Metter's $2 billion deal for AI startup Manus in a surprise move that unwinds a controversial deal. And Elon Musk and Sam Altman head to court with the Tesla CEO alleging that the Open AI founder abandoned its founding mission. Let's get to our top story of the day and this is an interesting one. Microsoft shares are now basically flat. But when news hit that they had ended their exclusivity pact with Open AI, the stock was down 4% in pre-market. Amazon shares shot up on the logic it would benefit. All of that has been undone. It is a complicated story. Bloomberg's Brody Ford joins us on set in San Francisco. The bits that are new, are there changes in the structure of the agreement between Microsoft and Open AI. Let's start there. What do we need to know? What can Open AI now do that it couldn't do 24 hours ago? So the big headline of what has changed is that the OAI models for a long time were exclusive on Microsoft Azure and that was really kind of the last bit of exclusivity in the story partnership that helped us usher in the AI era that now is kind of going away. And so this is meaningful for Open AI because they're in a world where compute is constrained, they need as much as they can get and they want to be able to distribute their products onto all the major platforms. Microsoft still gets access to the models through 2032. It's just that Open AI can sell them and make them available in other places. So, you and I were talking before the show, who benefits? Well, Amazon in the first instance, where its shares jump in pre-market, now I think they're they're lower again. But that's the idea. This is hot on the heels of a deal between Open AI and AWS, which I think was in January, maybe February. Yeah, in recent months, you know, OAI and AWS have been working together to distribute on that platform, which is still the leading cloud infrastructure platform. Microsoft reportedly was not super happy about that. We have to imagine the changes today are downstream of those discussions or at least discussions like that and what Microsoft gets in return here is that they're no longer paying a revenue share. Effectively they're saying, look, you can go and hang out with other people, but I'm not going to pay you to do it. So this is really interesting and again complicated. Basically, Microsoft was paying Open AI a revenue share from revenues where it used Open AI's technology in some form, right? But the the bit that's hard to understand is Open AI is still a customer of Microsoft. They basically pay them for various reasons. Open AI pays Microsoft and at the same time, Microsoft is the biggest investor in Open AI. How do you explain that? It's right, because it all stems from that original partnership with Microsoft and Open AI where for a long time folks saw it as Open AI was almost a part of Microsoft, right? So Microsoft gets access to these Open AI models. Everybody else has to pay for, but they just get to access them for free, at least for the next couple of years. Bloomberg's Brady Ford again, two red headlines from the from the report markets have behaved very strange and we'll get more on that later in the program. Let's turn to Metta. China has blocked the social media giant's $2 billion acquisition of AI startup Manus. The country's national development and reform commission ordered the cancellation of the deal, stating it was prohibiting the foreign investment in accordance with laws and regulations without further elaborating. Here with more Bloomberg's executive editor for Asia Tech Peter Elstrom. Again, another complicated story. Let's start with the what we need to know. This is a body in China unwinding it what we thought was a done deal. Yeah, this was a surprise as you alluded to earlier, the NDRC uh jumped in today. It was only a one sentence uh announcement that they made. They didn't name Metta, they just said that this foreign deal with Manus had to be undone. So what the NDRC is doing here is they're trying to reverse a deal that was announced in December. Um the the reason it is the is that uh Manus's founders originally started the company when they were in mainland China. They decided to move to Singapore in the middle of last year. They declared themselves a Singapore company. They did set up shop there legally and so when they cut the deal with Metta, Metta and Manus agreed to the deal and they did not get explicit regulatory approval from Beijing. But there were people inside of of China who were saying that um this was essentially losing critical AI technology to our biggest geopolitical rival uh in the United States and Metta in particular. So they wanted some sort of uh pressure uh put uh to this. And we wrote a story last week about how regulators now are pressing other AI companies not to take money from US investors in particular. Now, it's not clear whether China is going to be able to force Metta to undo this deal. These two companies have been operating together quite closely already. Metta employees have gone into the Metta offices. The executives are cooperating. All the investors in Manus have already gotten paid. They have their checks at this point. So it's not clear how they can unwine this. There's a technicality that Manus would say was headquartered in Singapore, but it shows that China has reach uh if there's an origin uh within country. The political dimension is that President Trump in just a few weeks time will visit Xi Jinping and speak with Xi Jinping. And that relationship uh as a negotiation has had chips, semiconductors at the heart of it. What about uh software? What about AI and what we expect uh to be a negotiation there? Yeah, as you alluded to uh the technology transfer between the two countries has been a very significant deal. China would like more access to Nvidia chips in particular that are used to train some of these more advanced models. At the same time, Beijing has decided that they do need to develop their own semiconductor industry. It's not clear how big of a strategic priority this deal is going to be for the Trump administration. We've reached out to them for comment on this, they haven't weighed in so far. It's not clear that that's that big of a deal. Metta of course is kind of playing catch up against uh Alphabet and uh Microsoft as you were alluding to earlier Open AI. So it's not one of the leading players in AI right now, but this deal was designed to get them back into the race. So we'll see whether Washington picks up the ball here and decides to make this a priority in those negotiations, it would be a bit of a surprise. Metta said in its own statement that they did the deal in compliance with applicable laws and that they expect a resolution but didn't say anymore than that. Bloomberg's Peter Elstrom who leads our coverage of Asia Tech. Thank you very much. Staying with AI models and another story out of China. China's Deepseek is aggressively rolling out low cost plans for its newly released flagship model intensifying competition in the country's AI sector. The company's offering developers a 75% discount on its deepseek V4 Pro model and has cut fees for input cache hits to 1/10th of previous pricing. Moves expected to heighten competitive pressures across the industry and could reignite a price-driven race to the bottom. Here is another story that broke this morning. Shares of Qualcomm are now down one one percent. They had jumped 14% in the pre-market. The company initially surged 8% at the open after a closely watched industry analyst suggested the chipmaker was working with Open AI on a smartphone. Here with the details, Bloomberg's equities reporter Ryan Vlasteka. This was about an analyst who posted a report on X and the market reacted, what are the details? Hey, good morning. Thanks for having me. So this is a very closely followed and highly respected analyst and it really excited investors because Qualcomm right now is going through pretty uncertain times. It has been uh pretty strongly pressured this year, the shares. Uh in large part because of the rise in memory prices. Prices for memory-related chips, which is having uh a negative impact on consumer electronics, especially its handset chips. So it's facing that kind of weaker backdrop and at the same time, this has been a longer-term story, but Apple is developing more of its own modem chips in house, developing more of its own internal hardware. That has been a major problem for Qualcomm, which used to count Apple as a major, major customer. So the prospect that they would get a new big customer in the form of Open AI, a new market, new smartphone market is obviously very exciting for investors. But I guess it's maybe a little bit too uh far out there, it's too hard to price what this would really mean as far as revenue or anything else like that goes. We did see the stop uh the stock pull back after a pretty uh pronounced initial gain. We're showing that right now. Qualcomm's down 8/10 of a percent. The analyst we're talking about is Ming Chi Kuo of TF International Securities. And, you know, the basics of it are, we know Open AI is planning some kind of device. We don't know much more than that. We know from January they were trying to establish a US supply chain. Qualcomm is the biggest maker of smartphone processors. Um and the stock went ballistic and then quickly fell away. Your interpretation of the headlines? Right, exactly. And the report did say that mass production will begin in 2028. So again, two years out, how do you begin to price something like that or factor it into a share price? Very hard to do, especially with so few uh details out there. We did reach out to all the companies involved. So far we haven't heard back, so a lot of the stuff remains sort of speculative. But like I said, right now people are very focused on the memory situation and how Qualcomm is going to navigate that. It does report its results, I believe Wednesday afternoon. So that's going to be a very closely watched report this week. Uh, you know, less uh in focus in some of the other mega caps, but certainly a a notable one to come out and I think, uh, maybe people are hoping that we'll get a little bit more clarity on the situation then. Bloomberg's Ryan Vlasteka, uh, thank you very much. Now coming up, we're going to speak with Tim Arcuri, UBS analyst and global co-head of AI. You just had the trio of top stories. Well, this is the guy who can react to all three of them. That's next. This is Bloomberg Tech.
[10:48]Okay, three big technology stories driving markets. The first Microsoft is down 7/10 of a percent. It is ended and broken its exclusivity pact with Open AI. Metta has had its deal with Manus AI and a gigantic AI platform blocked by regulators in China. That stock is up 6/10 to 1%. And then the one that I don't think any of us really saw coming. Qualcomm is now down about a percentage point, 8/10 of a percent. In the pre-market, it was up 14%. In the open, it was up 8% all on an analyst report that it is working with Open AI as the silicon provider on a future device. And that is all we know. Tim Arcuri, UBS Semi and Semi Cap Analyst also UBS's global co-head of AI is with us and I'm extremely grateful to have you on a day like today. Tim, the basics of what we know is that there are there are talks, right, between Open AI, Qualcomm, MediaTek was also named. Um Qualcomm is the biggest maker of smartphone processors. Um and the stock went ballistic and then quickly fell away. Your interpretation of the headlines? Yeah, look, I mean, we haven't commented on this deal uh in particular, but you know, what I would say is that uh you know, Qualcomm has had a server, you know, effort now for a while and uh it makes sense that they're, you know, going to be a player in an, agentic world. And um and uh and you know, certainly um, you know, certainly they have a big effort and and, you know, the thing I would say about Open AI would be uh Open AI tends to do a lot of deals with a lot of different companies. And so I typically put a little bit of a discount factor on, you know, any deal that gets signed with Open AI because they're doing deals with, you know, virtually everybody. Tim, when I think about my use of a of an AI tool, I spend a lot of time at my desk, obviously, I I access that any given tool through a browser on on desktop. But most of the time, it's on this thing, right? The smartphone is the form factor by which I engage with AI in my daily life. In your research, is that the direction of travel that you see? Yeah, I mean, we do uh we think that, you know, engagement with AI is going to be across a multitude of different platforms and a multitude of different devices, including uh, you know, smartphones, obviously. So, you know, Qualcomm is going to have a play here. Qualcomm uh is a is has a, you know, very, very strong edge franchise and and they will be a player. I think the issue with Qualcomm, of course, is that 70% of the operating profit today comes from um, um, phones. And and you had mentioned in the, you know, show previously that the the, you know, situation with Apple and we've talked about that where once Apple doesn't need their modem anymore, I don't think Apple's going to pay them a, um, license either. And so there's there's more angles to this Apple story. So I think you're going to have to get through this period before we can then look ahead to Qualcomm being a player in an, agentic world. I just want to update our audience on Bloomberg Tech that Intel went to the market um for the ingressment investment bond market this morning. They want some help financing what they're building out in Ireland, but it was an astonishing news week for Intel last week as well. Where do you see Intel in its evolution in its turnaround under under Libutan? Yeah, you know, we've been talking for some time now about uh being more optimistic about their foundry business and about how they're turning around manufacturing. And uh I think that there's a lot of different customers that are potentially very interested in doing a deal with Intel on the um foundry side. And I think you're going to hear more about that this fall. I, you know, we've talked about many, many different customers. So I think they are turning things around from a manufacturing point of view. Uh they have a lot of, you know, very good packaging IP to offer to these customers. I think the issue is their product roadmap and that's kind of where I've been really stuck. For now, I think because of the Gentic, the server CPU market's growing so much that that's what people are are, you know, getting excited about from a, you know, stock point of view. Uh so I I would just, I, you know, my caution really is on the product side. I think that they're turning things around. I think in foundry, the, you know, turnaround will come a little faster than it comes on the product business. Tim, we uh we ended Friday's show with the Philadelphia Semiconductor Index or socks up for an 18th straight day, 18 sessions, its longest winning streak on record. Uh we're we're giving some of that back this morning. A 19th day would have been interesting, I'm sure, but Intel was a big part of that story. What what what else was driving investor sentiment around semiconductors that put us on that historic streak? Yeah, look, I think um there's been a resurgence in the, you know, realization that the, um analog sector for one is not dead. I I I was pretty bullish on that sector into earnings. Uh, you know, TI came out and gave, you know, pretty good guidance. I think that customers are seeing the, you know, capacity constraints uh get closer and closer to them. You know, customers in the uh industrial world and so I think that customers pretty much across the board are beginning to think that they are going to have to start to build some inventories to protect against all of this. And that was one of the things that fueled this, you know, rally last week was when, you know, TI came out and basically guided, you know, gave, you know, pretty good guidance and pretty good commentary. And I think you're going to hear more of that. So that was a big driver. I think also, you know, I've been bullish on semi-cap equipment. I think, you know, you're going to hear more of that this week from, you know, KLA and from some others, uh, you know, upping guidance there. There's just so much capacity that has to get built out over the next three years. So I so I think it's a, you know, myriad of things driving the, you know, sector right now. We we didn't even have time to talk about Terrafab and whether you and the team are modeling that in as well, but we will next time. Tim Arcuri of UBS, really great to have you on the program. Thank you. Now coming up, it's a huge week for tech earnings. The two of the biggest names are slashing jobs. AI spending is surging, head count is shrinking. What's really going on? We'll discuss that next. This is Bloomberg Tech. A Wednesday, two of the biggest names in tech step up to report earnings, Metta and Microsoft. And they do it under a cloud of contradiction. Just days ago, both companies signal cuts that could touch as many as 23,000 roles combined. Metta planning to slash about 10% of its workforce. Microsoft offering buyouts on a scale it's never attempted before. At the same time, both are spending at record levels pouring billions into AI, data centers and chasing the next wave of growth. Here to discuss the tension, Sarah Franklin, Lattice CEO. The platform just sees massive flow of data, right? It's an HR platform, an analytics platform that that sees the world through numbers. And and that's why I love having you on the program. I just outlined the story. Two of the biggest companies in this country and in the world, cutting levels that we've not seen, but spending a lot. Is that the trade-off that companies are managing right now? We're seeing this across the board. It's a trend in tech Ed and it is really important right now that we look at people and their performance. And not just what they're doing with tokens or what they're doing with AI. It's very interesting right now how you see leaders that are investing in severance and not necessarily the skills. It's a transformation in tech and we need to have leaders with the courage to take people from here to there. You know, job cuts and and rolls being eliminated is is not pleasant, right? You know, and and if anyone from Metta or Microsoft is watching, you know, reach out, tell us what you what your experience has been. But what you said on performance is so interesting. So what, the managers are measuring this in revenue per employee or output per employee to make that decision? You see a lot. You see revenue per employee, you also see token maxing is a trend right now. But this day and age, yeah. Yes, right. But ask yourselves, like, would you look at the person at your company that sends the most email as the most productive? It's a new thing that we can use to measure. It's not necessarily the correlation to performance. And what we need to do is help people get from where we are today to where we're going to with AI. You know, a lot of people would look at the overall size of a Microsoft or a Metta and say, you know, uh well, 10,000 roles or 8,000 roles is is or isn't a lot to anyone's point of view. From the payroll perspective, does does cutting that level really free up capital? Does it take the pressure off the finance teams? It doesn't really relieve the pressure and it also deeply impacts culture. Uh whether it's one person or a thousand people or 10,000, it is a human and people care about what happens to other humans. So there's a real cost on the spreadsheet. There's also a real cultural cost to what it means to lay off people. I I always try and look deeper. What what's the underlying story? I remember when you and I were talking in kind of more immediately after the pandemic, the idea was to undo pandemic era exuberance in hiring. Now it's, you know, it's about the AI era, right, and freeing up for CAPEX. But what those two things have in common is when you see waves waves of layoffs to that level, they're really experienced people in there. Sometimes they go and found companies of their own. Yeah, no, it's what we're seeing right now is a big transformation in tech and it's not just for the companies, it's also for the people with their careers. They've spent years, decades even, working on refining their craft. And what it means to be told to change overnight. It's like me telling you, be in Europe in an hour. Unless you know how to teleport, it's not possible. But you can get there in a day. And so everybody's looking right now, how do I transform? How do I evolve with AI? And it's something that's a responsibility of leaders and also people to take it into their selves to learn as well. I I also want to make the distinction, you know, Metta is doing cuts. Uh Microsoft is doing what what I used to call in the UK voluntary redundancies, but buyouts here here in America. Is there is there something to learn from that distinction or it's just a different means to the same end? It's still an investment in severance and not in the skills of your people and that's the big difference. And so the more that we can invest in how we train people, how we get them from point A to point B, the better that we will all be because it's a short-term gain on the spreadsheet, but a long-term loss in the knowledge that you have in the workforce.
[22:15]Sarah Franklin, of Lattice, it's great to have you back on Bloomberg Tech. And we are just at the start of what is a big week in earnings.
