The Newsletter

The Transcript 12.09.19

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Succinct Summary:  The story has been the same for most of this year.  Consumer spending and sentiment remains strong while business investment and sentiment stay weak.  There may be signs of an industrial uptick in China though.

Macro Outlook:

Consumer sentiment is strong

“As we enter the holiday season, and based on what we observed in the third quarter, the North American consumer seems to be in excellent shape. The economy is strong, jobs are plentiful and the consumer sentiment remains high.” – Urban Outfitters (URBN) CEO Richard Hayne

But business spending is weak

“[the] business environment…continues to be soft and the outlook forward is that it’s just going to continue to be soft.” – CSX Corporation (CSX) CEO Jim Foote


There may be an uptick in industrial production in China

“I guess the one thing is we just had the China industrial production output yesterday, which was the highest level in three years. So that kind of confirms some of the upticks that we’ve seen in China” – NXP Semiconductors (NXPI) CEO Rick Clemmer


There is still a lot of cash used in developed markets

“So if you look at developed markets, where some of you may think, well, penetration rates have gone up, and is there more opportunity? The fact is that there’s still large amounts of cash sloshing around, right, still in that $17 million, $18 trillion range. Even in the U.S., there’s $3 trillion in cash. And out of this $3 trillion in cash, there’s still a lot of cash around. And what we can do in developed markets is a variety of things that we’re doing. There’s still opportunity to expand acceptance to smaller and smaller merchants, and that’s being enabled by devices like these.” –Visa (V) CFO Vasant Prabhu


Millennials want “quick scratch cooking”

“So a lot of discussion around millennials over the years and the reality is that as Millennials age, we are finding them participating more and more in in-home preparation, we call it quick scratch cooking, which is essentially assembling several components to make a meal” – Campbell Soup Company (CPB) CEO Mark A. Clouse

Delivery economics are more favorable in China than the US

“we’re seeing a different profile of delivery business in the U.S. versus China. In the U.S., it’s a slower build, I think in part, because compared to food and beverage delivery generally we are at a lower ticket. And so the delivery charge is a higher percentage of ticket and probably acts as a bit of a barrier to utilization of delivery for beverages only…we’re seeing a slow build, but we expect that over time this could increase, as consumers are increasingly looking for convenience…So I contrast that with China {where} we launched delivery a little over a year ago in partnership with Alibaba and we’ve seen a nice steady build in that business…as in the U.S., those transactions come at a slightly lower margin” – Starbucks Corporation (SBUX) CFO Pat Grismer

P&G is demanding more transparency in digital ad spend

“After years of higher digital media spending with little visibility we had frankly had enough. We called for industry-wide digital media transparency demanding transparent third-party verified data on ad viewability, audience reach measurement, agency contracts, ad fraud prevention, and brand safety. The first step is largely complete and it exposed substantial waste. So we reduced wasteful spending and reinvested it back into better performing media.” – Procter & Gamble (PG) Marc S. Pritchard


Chinese electronics manufacturers are carrying higher inventories than usual

“Chinese customers given the U.S. China trade tensions, are carrying higher level of inventory than normal. And I think you’ve heard about that from some other companies as well.” – Micron Technology (MU) CEO Sanjay Mehrotra

Tech spend is 5% of GDP Microsoft argues that is going to be 10% in 10 years

“One way for investors to think about what’s happening with cloud computing at large is to think about what the total spend in technology today is, it’s around 5% of GDP. On a secular basis, I think it’s going to be 10% which is going to double in the next 10 years. And that’s because every industry, whether it’s in retail, whether it’s in healthcare, whether it’s in manufacturing, they’re all being transformed by digital technology.” – Microsoft (MSFT) CEO Satya Nadella

Technology companies always need to reinvent

“The things which I discovered the last 18 months in the security industry was a lot of companies find one solution, one product and go out and deploy it across the board, reach a $15 billion $20 billion market cap. And they don’t reinvent themselves, or figure out how to go from there, to a bigger scale, they eventually peter down and become part of the large enterprise graveyard, which exists in the $3 billion to $10 billion range.” – Palo Alto Networks (PANW) CEO Nikesh Arora

5G should drive a mobile device upgrade cycle

“we expect a lot of equipment sales…with AT&T having a national – nationwide 5G coverage next year, we expect handset sales to pick up for people to take advantage of those new services. So that’s mobility, both service and quite frankly equipment.” – AT&T (T) CFO John Stephens

5G could have much larger implications too

“as people think about 5G, this is maybe the greatest political technological shift that might be the last one of our career, right, in that sense because 4G – LTE was a faster 4G. 5G is dramatically different. It changes latency, edge capacity. It changes everything about the network architecture. So this is a big one in that sense…. when you talk to any of the service providers, they look at those Edge, smart city, smart building use cases, WiFi replacement, private 5G, these all become very big incremental business opportunities not just faster consumer opportunities.” – VMware (VMW) CEO Pat Gelsinger.

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