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Pieces of news coming across the tape

here this morning particular on the tech

side is Microsoft's Xbox unit plans to

cut 3200 jobs and Devest Studios in

another overhaul here. Brody Ford,

Bloomberg technology reporter uh joins

us here. Brody, what's going on at

Microsoft here today?

>> Pretty much across the industry of

technology, you see companies trying to

rethink where they're spending money. A

lot of this is fueled because they're

spending so much on AI and building out

data centers and infrastructures that

they're taking a closer look across all

divisions. So today, Xbox is the one

that we see really kind of getting that

hammer. They laid out a plan to cut

about 20% of staff over the next year.

Um, and broader at Microsoft, it's a

plan to cut about 6,400 people. Um,

again, just kind of trimming both an

Xbox and sales, trying to reorient for

what they say will help, you know, them

grow in this next era. Brody, what is

the rationale for Microsoft keeping

Xbox? Um, the CEO of the Xbox division

uh wrote in a note to staff uh this

morning, and this is based on your

reporting, that Xbox is operating at

margins three to 10 times lower than

comparable businesses. I mean,

financially, it's not keeping up. So,

why does Microsoft want to keep it?

It's a good question. Microsoft really

has traditionally struggled with

consumer businesses. You know, every

time they've kind of tried to spin up,

say, like a smartphone or things of this

nature over history, it hasn't always

gone super well. Xbox they've been

traditionally committed to because it

was this unique blend of hardware and

software and they found a niche in it.

And yeah, today is them trying to

reorient that business into something

that they can keep and grow for the long

term. Um, so you see them spinning off a

lot of studios talking about how owning

owning content makers maybe isn't the

business they want to be in. Um, but

owning the platform is something they're

still interested in doing.

>> How much is Xbox do we know of of their

total revenue? Like how material is it

for the financials of this company?

>> It's a decent chunk of revenue, right? I

mean, the issue is the profit. You know,

a lot of people buy video games, a lot

of people buy consoles, but you know,

Microsoft has really struggled to make

it super profitable. I think a lot of

people forget about the Activision

acquisition a couple years ago. I mean,

I think I was think like $69 billion. It

was one of the biggest tech acquisitions

of all time. And yet, a couple years

later, we find that the margins haven't

kept up. The growth isn't quite what

they hoped it would be. Of course, we

have the component crunch, right? A lot

of things like chips and memory have

increased in price which kind of

accelerate all of these issues. So it is

a material business for Microsoft. It's

not something they're ready to throw

away, but it's something that they feel

they need to really kind of take a

closer look at.

>> I know you don't cover Sony per se, but

how do Xbox's fortunes compare with say

the Sony PlayStation?

A lot of console makers are struggling

right now because of that memory crunch

because AI has essentially messed with

the supply chains for a lot of different

components that go into computers and

infrastructures. And so if you're a

console maker that's already running at

pretty slim margins, then all of a

sudden your memory trips double in

price, that's going to make everything

tough. And more broadly, content makers

are needing to compete against, you

know, a wider variety of content that's

able to be created with AI. I mean, as

it relates to AAA games, they're not,

you know, being created with AI, but

there's just so many more places for

eyeballs to be focused on these days

that if you're selling content, it's a

more competitive market.

>> Microsoft stocks down 20%

[clears throat] year to date. It's it's

rare that that you see that kind of

performance out of Microsoft. Um, what's

the feeling within the offices that

they're Redmond, Washington? I mean, h

do they talk about their stock? Do they

ignore their stock? How do they kind of

just talk about it? Think about it.

>> When you ask an executive, they say,

"Oh, I don't care about the stock price.

I focus on executing." You ask an

employee and they say, "What the heck is

going on with our stock price?" Right?

And that's consistent across all

companies. Um the big thing for

Microsoft and you can see this with

other hyperscalers you can see with

Oracle very well is that on one hand

Wall Street is worried about all this

spending is it going to pay off all the

data centers on the other end there are

traditional software businesses that

have really created the cash cow that is

Microsoft does that last in the age of

AI so they kind of have these two

concurrent fears which are leading to

yeah some weakness for a stock that has

been just a pretty consistent safe

harbor and so much choppiness over the

market recent years.

>> Brody, I know you cover Microsoft. That

company is going to be reporting its uh

quarterly results at the end of this

month. Will this Xbox closure, do you

think, result in some surprising

financials on earnings day?

>> What I would expect to hear them talk

about is ongoing focus on margins,

which, you know, is corporate speak for

we're planning to fire 20% of people at

Xbox. Um, you know, I think we'll hear

them talk about how, look, we're

spending a ton of money on our data

centers, on our chips, our capex is in

the past hundreds of billions of dollars

a year, but we're doing what we can to

trim costs everywhere, and we're going

to make sure that we're really getting

an ROI out of every dollar. I think that

will be the highle message. And if you

poke underneath it, you see phenomenon

like the cost cuts today.

>> Stay with us. More from Bloomberg

Intelligence coming up after this.

You're listening to the Bloomberg

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>> Believe it or not, kind of flying under

the radar screen here. We're kind of

getting a quasi IPO coming soon. SKH

Highex, their Korean company, they make

all the memory chip stocks up like a

gajillion percent. They're going to list

17.79 million shares ADRs in the US and

I think that's if I'm my math is correct

that's like a $28 billion offering. I

mean we're kind of getting numb to these

huge numbers with Goldman. I mean Google

doing their secondary earlier this year

and all the big IPOs we've seen with

SpaceX. But let's put it in context

here. We can do that with Bailey Lip

Schultz, senior equities reporter for

Bloomberg News. Bailey talk to us about

what SKHEX is doing here. Yeah. So, this

is a company to your point nominally at

28 billion would be the third largest

IPO ever on any exchange. So, behind

SpaceX, behind Saudi Aramco, uh, which

is pretty mind-boggling to be completely

honest. The thing to keep in mind is, so

this is an ADR ADR IPO. So, basically,

they're selling shares for the first

time here in the US. They will maintain

a home listing on the other side of the

world in South Korea. Each ADR

represents onetenth of one common share.

Why does that all matter? A, as you

mentioned, a $28 billion offering is

very large. B, this is a company worth

more than a trillion dollars. And C,

this opens up everyone on Wall Street,

everyone in the US to now actually trade

SKH on New York hours, on US hours, and

be able to cater to not only retail

investors, but institutional investors.

We already saw Bailey Gford, CO2, and

situational awareness partners

indicating they want to buy as much as

$7 billion of this deal. So big numbers,

but it's also a right time for the

company.

>> Timing. Um, I've heard people talk about

maybe this is feels a little top of the

market kind of thing. Are you hearing

that out in the marketplace?

>> Yeah, when we talk to people, the main

question is can we structurally say this

time is different? And why does that

matter for semiconductors?

Semiconductors are the most cyclical

business on Wall Street. So, this is an

industry that booms and busts as kind of

the PC and smartphone eras evolve and as

sales uh kind of mature from there. The

big question is, will we continue to see

demand for building out data centers?

Will we continue to see that here on

Earth and potentially as SpaceX wants to

do in space? And the big question from

there goes, these are companies that

want to spend hundreds of billion

dollars to build out manufacturing

capacity. right now there's a bottle

bottleneck to get compute and get access

to these chips. Well, what happens if

it's not that easy? And that's the big

risk. So, just from a US listing

perspective, um do is this going to go

in various indices? The is SKH in the

various indexes around the world?

>> It's in some um when you just kind of

look using the uh WGT function, which

will pull up which indexes the company

is in. Obviously again it's one of the

bigger bigger companies uh in the world.

So it's in obviously a big driver behind

the Cosby the Korean exchange. It's also

in a number of those emerging market ET

emerging market indexes. The big thing

to keep an eye on and the big thing that

does matter is it's not eligible for

fasttrack NASDAQ 100 inclusion but in

the long run it will likely be included

in the NASDAQ and 100 and everything

that that brings. Obviously we talked

about that with SpaceX. That is a

fundamental shift for a company again

that has been very difficult to trade

for US investors. And then the question

from there goes okay do we get to see

double and triple triple levered ETFs

and kind of what happens with that

entire explosion from there. So will

this open up new buyers I guess

potential new owners for this stock?

Yeah, when we've spoke with a number of

institutional investors, whether they

couldn't trade companies that are listed

in an emerging market, whether they just

don't want the headache of worrying

about foreign exchange and hedging some

of those risks, that those have been top

of mind. We do know a few investors that

we spoke to for for our story that went

out Sunday morning. Uh there also are

investors who just aren't comfortable

with an ADR. They want to own companies

that are doiciled here. They want to own

companies that their primary listing is

in the US as opposed to this. It'll be

interesting to see what kind of premium

it trades at. This is kind of ripping

off the playbook that we saw with Taiwan

Semi, but again, that was a company that

raised a few hundred million, not closer

to 30 billion.

>> What's the timing of this deal?

>> Uh, it'll price in it'll trade on

Friday. We expect pricing to happen

sometime Thursday morning here so that

it would open up kind of making sure

that people are able to trade

accordingly in South Korea there Friday

morning. It's a truncated process. It's

a quicker process. But even talking to

the bankers on the deal, if you want to

invest in SKH Heinix, you probably know

who the company is and you're not

selling a new entire pitch. The one

thing that we've been pointing out is uh

their main road show at 1:30 p.m. New

York time will be the only real

interaction with management on a webcast

for potential. So they're just doing a

webcast for

>> kind of a webcast very quick process.

Again, it's tied to it. I'm over

complicated.

>> Just another great day to be a

[laughter] IPO banker, right? Yeah,

they're making I think it was uh 50

biffs on this deal. So, okay,

>> we had a few bankers who said, you know,

this is this isn't easy, but when you

compare to being at the beck and call of

Elon Musk, uh night and day between the

SpaceX IPO.

>> Exactly. And then we How about

anthropics? That's still thinking maybe

fall, late fall, something like that.

>> We've heard nothing to change

expectations around that September,

October time frame. Obviously, uh

potential delay of open AI into next

year becomes a question of if you're

anthropic, do you need to race and get

out in September or do you want to have

a better kind of a visibility into your

business maybe in that October, November

time frame.

>> Stay with us. More from Bloomberg

Intelligence coming up after this.

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>> You're listening to the Bloomberg

Intelligence podcast. Catch us live

weekdays at 10 a.m. Eastern

>> on Apple CarPlay and Android Auto with

the Bloomberg Business App. Listen on

demand wherever you get your podcasts or

watch us live on YouTube. We want to go

now to our colleague in London who along

with his colleagues have put together a

list of 10 companies to watch for in the

third quarter of 2026. There are

companies that dabble in chips,

chocolate, and Barbie. So, let's check

in with Tim Craighead. He is our global

chief content officer on the 10

companies that you want to watch for

right now. Good morning, Tim. Um, what's

the first one you would want to

highlight?

Well, if you don't mind, I'll give you

just a little bit of context on this

just to put it into some perspective. I

think you set it up quite well, but I

would just simply add that these 10 are

part of a broader group of what we call

focus ideas, which are high conviction

fundamental views that our analysts have

across sectors across the globe. There's

about 160 of them. And the reason why we

got to these 10 is that they all have

timely catalysts coming up in the third

quarter that we think can change the

market perception company by company.

And and look, you know, the the the

biggest one it's in AI, it's very much

it seems like out of favor is Microsoft.

Um you know, this is a this is a a stock

that has been under pressure since last

autumn. Even while other hyperscalers

like Amazon and [clears throat] Google

have been have been trading better and

the semiconductor companies clearly that

are all AIdriven have been have been on

fire and you know bottom line it seems

like the perception is that Microsoft is

going to be disrupted you know to use

the buzzword but in our perspective you

know they've got one of the biggest if

not the biggest LLM cloud

uh platforms that are being used and

they've got a new Microsoft 365 suite

that comes out in the second half. We

think both of those can continue to

drive revenue that's going to positively

surprise

>> Barbie Mattel. What's the story there,

Tim?

>> Yeah. Well, the uh the interesting thing

with this is not all of these focus

ideas, not all of these 10 companies are

constructive positive calls. There's

also ones where we're cautious or

concerned and that's the case with with

uh with Mattel. [gasps] Um you know

there was a a nice big surge in doll

demand, Barbie demand in and around the

um the Barbie movie a couple of years

ago going back to your stomping grounds

Paul in media. And what we've seen since

then is a progressive shift more towards

um uh building sets and trading cards in

terms of what's cool in the world of

toys. Dolls are not. And we think that

there's continued disappointment from

the standpoint of doll sales,

specifically Barbie, as we look through

the second half of the year.

>> I did see Toy Story and I feel like, you

know, maybe that gives a little bit of a

jump start to something.

>> You saw Toy Story 5.

>> Toy Story 5.

>> And what did you think? I liked it. Oh,

good. Yeah, it was good. I I like um you

know the face off against tech and

screens and all that, but I digress. Uh

Tim, I wanted to

>> We will hear

>> Yeah, we will hear more about that in

their earnings release. So,

>> okay. So, that is uh something we can

update as we get closer to that. I want

to get to a European company as well

because you have Solar Edge as a company

to watch for in Europe. And I think

about what's going on with the heat wave

there and how energy security continues

to be an issue for the continent.

>> Yeah, it it

it is all about energy security. Uh and

you know, it's it's been lit up

obviously yet again in the the wake of

the crisis or the the conflict in the

Middle East. You know, it it started to

begin with with Russia, Ukraine, and

Europe is is in the is in the hot seat,

no pun intended. And the the ramp up

that we are seeing in terms of solar

equipment related orders, we think will

continue to surprise. It's been

recovering uh for a for a couple of

quarters and we think that there is more

to come and not fully yet appreciated

but it is all about its European

business even though I think it's

actually based in Illinois but the

European uh opportunity is what's

driving revenue surprise.

>> Hong Kong land what what what is this

company and why should we be paying

attention?

>> Yeah. So, if if either of you or any of

the listeners have been to Hong Kong,

one of the the the iconic buildings

right on the uh the the the the central

uh Hong Kong business district

waterfront has these famous circular um

circular windows. That's that's these

guys building along with many others.

And the whole thing that's going on with

Hong Kong in terms of office is it's

coming back to life. You know, it was

under a significant amount of pressure

post pandemic and the national security

law uh being implemented. People were

leaving, businesses were leaving, but

they are now coming back. There's a

surge in the Hong Kong stock exchange.

IPOs are alive. The financial markets

are alive. professionals are coming back

and uh rents are rising and net asset

value for Hong Kong land specifically we

think is on the upswing.

>> Stay with us. More from Bloomberg

Intelligence coming up after this.

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Intelligence podcast. [music] Catch us

live weekdays at 10 a.m. Eastern on

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wherever you get your podcasts or watch

us live on YouTube.

>> Novartis

agreed to buy British biotech Mrix Bio

for as much as $1.5 billion adding an

experimental cancer drug designed to

deliver more potent treatments directly

to tumors while limiting damage to

healthy cells. Let's break it down. Plus

all the healthcare news. We can do that

with Sam Fiselli. He's the director of

research uh and he's a pharmaceutical

analyst for Bloomberg Intelligence. He's

based in London. Uh Sam, talk to us

about Novartis kind of what are their

strengths? Where do they need to get

better? And what are they doing with

this particular deal?

>> Yes. So Paul, uh first happy post 4th of

July to you guys all uh for your

independence from the British um all

those years 250 years ago and to the

audience obviously. So here here we have

Novartis buying a a cancer drug company.

Novarta is already quite active in

cancer. In fact, one of the areas that

they are quite active in is getting

radio um uh radioactive material to your

tumor rather than you going to get

radiation from an external beam or a

machine. This is things that are kind of

trying to target the tumor, particularly

prostate cancer in this case that

they've got a marker on prostate cancer

cells get radioactivity in there. But

one of the other things that has been

evolving very rapidly recently is

getting chemotherapy directly to the

tumor rather than injecting it all over

the body. The hope being that you can

reduce the side effect profile and

increase the efficacy. That's what this

new deal is. And this is something

relatively new for them. They had deals

like this before. When you look back in

2013 and 2016, they had done some of

these antibbody drug conjugate type

deals, but obviously that's over 10

years ago for the later deal. So nothing

seemed to have come out of that. So this

is their back into that space. And I

think it's quite an interesting clever

deal. Big upfront number though. That's

quite interesting. $1.1 billion cash

upfront.

>> So I'm glad you bring up that point.

That idea of big upfront uh payments. Is

that the new norm now in these kinds of

deals?

>> So I I don't know how competitive this

deal was. I'm hoping to talk to some of

the founders who um I know because

they're in our backyard, right? Um to

try and understand, you know, what was

it that attracted Novartis so strongly

to this. I you know, this is a British

biotech company. So that means

automatically that they're not um

necessarily able to go and raise

hundreds of millions from the local

market. they are in pre-clinical stage

or very close to at least what publicly

information the publicly available

information we have is preclinical. So

this is a rich number for an such an

early company and there's very little

chance that they would have been able to

go public. So why have artists paid so

much up front rather than do what

usually happens i.e. pay a smaller

amount and leave the rest of it for a

milestone in in in a year, two, three

years time is going to be interesting to

find out they do have some very clever

chemistry in here. And um this is not

just an ordinary for one of a better

phrase, not that any of these drugs are

ordinary antibbody drug conjugate. They

have they have new drugs that they're

trying to get into the tumors. So that's

that's interesting.

>> How is what what's what's the call out

there on Novartis stock these days, Sam?

What do people have to kind of believe

here to to jump on this one?

>> Yeah, so the shares the shares have been

doing reasonably well. The company's got

a decent pipeline there. One of their

big drugs is coentics, which is not for

oncology. It's for um uh psoriasis and

and and that type of disease. Um uh

arthritis type diseases or autoimmune

diseases, let's put it that way. And

that's a big drug and some people are

worried about it going off patent like

every pharma company. That's the rule of

the game with them. We think in our

group that coentics has got a longer

life than people think. Um so you know

they have an active uh oncology business

where there's some again same sort of

story but with those radiochemicals if

you remember I just uh highlighted and a

whole bunch of other drugs that are

coming on and and here I think they're

um going into this this is going to be a

long way off in terms of paying back

because it's pretty clear early phase

right so it's going to be 5 10 years

eight years so it's not aimed at today's

problems it's a bit like the type of

lily deals we were talking about last

week which are some early deals that are

being designed to to make sure the

company has got assets to keep thriving

going forward. And this can pay off in

many different ways. Remember these

chemicals can be attached to any

antibbody to attack different types of

tumors. So it's a platform.

>> It's a platform and everyone's trying to

build one. Um let me get your thoughts

Sam overall on M&A in the space. You

mentioned the Lily deals and we know

that Lily is operating from a position

of strength being able to go out and

build up its pipeline in a way that

perhaps other drug makers aren't able

to. Who else is operating from that kind

of position of strength in addition to

Eli Lilly?

>> Yeah. So Merc has got a pretty good cash

flow position. Um Astroelic has got

strong cash flow. GSK did a deal, one of

the deals we spoke about recently. Um so

most of the pharma companies are in a

pretty decent shape. Abby, you know,

they've got great great growth and you

can see analysts are upgrading the stock

on a on almost a daily basis. Um, so

most companies do FISA is the one that

that has done its M&A to a degree and

now we're waiting as as to for that to

to bear fruit. The latest one they have

done other deals. They have been doing

licensing and partnership deals. So most

pharma companies are in a position of

strength from a cash flow perspective to

be able to do these types of deals and

their balance sheets are relatively

light uh across the sector as a whole

and so there there's access to credit

there too if they wanted to.

>> This is the Bloomberg Intelligence

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