Alphabet Earnings Miss Estimates, China Launches Retaliatory Probe
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. So U.S. tariffs on Chinese goods are now in effect, and then China issued a response of its own. Coming up, we'll be looking at the currency market reaction with Eddie Cheung. He is senior EM strategist.

at Credit Agricole CIB. But let's begin with Alphabet. After the bell here in the U.S., Alphabet reported earnings for the latest quarter. Joining us now for a closer look is Annabelle Jewellers, Bloomberg Tech reporter. She's in our radio studio in Hong Kong. We can talk about the earnings in a moment, but I want to circle back

to the retaliatory tariffs that we got yesterday from Beijing. Part of that story was that Beijing is going to probe Alphabet. Can you help me understand what's going on here? Well, it is a little bit confusing, actually. You could probably say because a lot of people would know that Google hasn't been available as a search engine in China going all the way back to 2010.

So, you know, the question is really what exactly is China going to be looking into? And essentially what they've announced is an investigation into Alphabet's Google for alleged antitrust violations. The real focus of this is perhaps going to pertain, and this is what our Bloomberg intelligence team is saying, but it could relate to the market dominance of the Google Android mobile phone operating system, which is in China's smartphone sector, of course. And

According to data from IDC, approximately 70% of smartphones that are sold in China were Android-based last year. So that could be the sort of the broader focus. But in terms of the market reaction, yesterday we actually didn't see Alphabet shares moving really very much off the back at all. In fact, they closed 2% higher. But it is still the cheapest stock in the Magnificent Seven group of tech companies. And that seems to be more what investors are focusing on or have been focusing on, of course, ahead of the earnings.

So what does this investigation in China mean for Google? Well, you know, there's a lack of clarity, I guess, on that front moving forward. And even in the earnings call, for instance, today, I was listening to it and I was reading again the transcript later on. It didn't actually come up at all. But certainly there has been greater scrutiny on Google's practices in a range of different jurisdictions. But

the company really hasn't reacted too much to this one just yet. So let's talk a little bit about what we heard on the earnings call. Disappointing revenue here, is that fair to say? And that is one of the reasons the stock took a hit? Yeah. And really, I mean, disappointing

with sort of some nuances around that. The big focus was, yes, at a top line level, we came in a bit weaker than had been expected, but the cloud division was the particular watch for investors because this is really sort of the growth driver for the business. And after the announce of DeepSeek, for instance, the Chinese AI startup that's promising to do the same as the likes of OpenAI, for instance, or ChatGPT, but for less compute power and less chips as well going into it.

This is really the big focus. Actually, the cloud division disappointed a little bit and we saw revenue coming in at $11.2 billion or thereabouts. The estimate had been for 12.2. So it's only a real 2% below the forecast or thereabouts, but still investors are pretty cautious of that given the global macro environment and the need for tech companies as well to really be able to justify their intense ROI. The revenue shortfall is going to pressure any company, whether it's Alphabet or any other big tech company,

to kind of justify the capex spending and in this case when you have a story like deep seek that is bringing to the fore this idea of maybe there's a more efficient way about training these ai models that you've got to be very careful when you're throwing a lot of money at something that is yet to kind of return that as you said that return that investment

Exactly. And again, I was listening in on the earnings call, would deep seek be raised at all? And this was a question that came up. Google said that its own models are still really efficient. But in terms of the CapEx, this is interesting because a

Another reason perhaps that we're seeing this really sharp market reaction, the stock has really tumbled in late trade today, is because the company is guiding for significant outlay for this year. So they're expecting CapEx around $75 billion. The estimate from Wall Street had been for around $58 billion. It's more than they spent in 2024 as well. A lot of it's going to come in the first quarter. So they're really doubling down in an environment where

Again, where there's concerns whether that need for compute power is going to be sustained moving forward. Now, I know you cover a lot of technology from Hong Kong. We also heard from advanced micro devices after the bell. And I think these two stories are connected, right? When it comes to this idea that we're going to be spending much more money to develop this computing power. And AMD, I think in their data center division, that was a bit of disappointment on that front.

Yeah, exactly. And again, it sort of all relates back to this story around deep seek. And are we seeing sort of a new paradigm emerging for AI tools where we move from the large language model to the small language model instead? And so that's really shining a spotlight, again, as you say, on AMD's data center unit and that workaround.

was a weaker spot that came through in the earnings. So the division reported revenue of around $3.9 billion for the latest quarter. The average analyst estimate had been for 4.1. So there is that concern that AMD's push into AI equipment is losing momentum. And again, we're seeing that reflected in the share price today. So as long as we're talking about DeepSeek, is there news that you can share? I know that from the US side, there have been a few investigations. One

on the part of Microsoft and OpenAI looking at how this model was trained. And then, I guess, from the point of view of the U.S. government, whether or not DeepSeq was able to access some of these more advanced semiconductors that have been under export controls. And I'm thinking principally the chips from NVIDIA. Do we know anything more? No, this has been sort of a question as well.

For its part, NVIDIA said that DeepSeek had been able to build this within the export restrictions that are in place. There is concern about how possibly DeepSeek could have used other AI models like ChatGPT, for instance, to train its own. So these are sort of ongoing investigations.

For the market or the moves that we're seeing in Asia, there are some interesting ones where governments are clearly becoming more wary. One that just broke in the last few hours is actually in Australia because they've banned deep-seek AI services from all government systems and devices. That doesn't extend, of course, to personal devices of private citizens, but it's a

But there is real question marks around how this tool is going to be used, where it's going to be available. But it does seem like they did manage to get around those export restrictions, or they weren't rather evading the export restrictions that are already in place. Annabelle, thank you so much for helping us understand more about what's happening in the area of technology. Bloomberg's Annabelle Droolers, who covers tech for us from our bureau in Hong Kong, joining us here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. The latest U.S.-China trade war continues to loom over foreign exchange markets. Right now, the offshore yuan is holding near record lows this morning. Yesterday, you'll recall, the U.S. imposed that blanket 10% tariff on Chinese goods, and China responded with its own retaliatory tariffs on some $14 billion worth of American goods.

And Beijing took other steps as well. For more, we heard from Eddie Chung. He is the senior EM strategist at Credit Agricole CIB. Eddie spoke earlier with Bloomberg Sherry on and Heidi Stroud Watts. Let's start with the big news today. I mean, Chinese mainland markets coming back online from the Lunar New Year holidays. And there's so much to digest on the tariff front, not to mention that they missed out all of the volatility around the Chinese startup DeepSeek. What are you expecting today?

Well, I think for the moment, if we're talking about FX, it's going to be still steady as she goes story. Basically, heading into the holidays, we saw there was some pressure on the CNY. The authorities were basically holding dollars, CNY fixing very, very steady. Since then, as you mentioned, there's been a lot of volatility. Dollar CNH has been moving around back and forth. But our view is in the context of this potential trade war between U.S. and China, in the context of the tariffs that are happening,

It doesn't really make sense for China to introduce more FX volatility at this point in time. So in terms of dollar CNY fixing today, we are expecting a fairly steady fix. They've been holding this fixing below 720 for a while. We don't expect them to allow a very, very large move upward in dollar CNY spot at this time. There's really no sense in giving the U.S. more ammunition to hold against China right now. So it's going to be more steady as she goes forward.

When it comes to emerging market currencies, given of course the pressure on the weakness of the Chinese Yuan that's always been perceived as an anchor for EM Asia, how are we expecting them to trade given also the other side of that trade, the strength of the U.S. dollar?

Well, I think it's been very clear. I think firstly, the US dollar remains in the driving seat. And as long as for dollar seeing why we're not seeing unprecedented volatility, as long as we're not seeing massive volatility from that point of view, the impact on dollar Asia in our view is still fairly muted.

Of course, in the context of the trade war or the tariff news that is happening right now, that does form a bit of a drag. In our view, the more cyclical currencies, the more trade-oriented currencies, the likes of the Korean won, Malaysian ringgit, Singapore dollar, these are the currencies which will be a lot more impacted. We have seen a bit more volatility in these currencies.

But for now, as the dollar is softening a little bit since yesterday, it probably looks to be a bit more of a positive start. But after that, it will still be very, very driven by the trade headlines, how China responds, and of course, where we start with dollar CNY.

The main impact of course has been the primary targets of these tariffs, China, Canada, Mexico. But I do wonder, there's some optimism when it comes to how much China has diversified its trade flows. But what's the vulnerabilities if you take a look at some of the trading partners within Asia, Vietnam for example, or even the likes of Korea?

I think there's two sets of vulnerabilities. So firstly, if we look at Trump and his policies, he is still very, very focused on the bilateral trade deficits between U.S. and the individual Asian economies. So, for example, as you mentioned, Vietnam has a very, very large surplus. Korea, Taiwan...

Malaysia these also have very very large trade surpluses and it has actually increased since his first term so from that point of view we do expect that to be a point of vulnerability to also be a concern if you look at the US FX Treasury report that came out in November of last year these also highlighted the large bilateral surpluses that these economies had with the US so that will be the first thing the second thing will be well

In terms of the integration of the supply chains across Asia, clearly these trade-oriented economies, they also are very integrated in terms of the supply chains going through China, going to the U.S., and of course, vice versa. So if we see this rising trade friction coming through between U.S. and China,

then clearly for all these economies, it will also impact their trade flows. We saw this morning, you saw the Singapore PMI came out a bit lower. In terms of the Asian PMIs, actually it has been turning a bit more mixed. We believe that heading into the end of the year, there was a bit of front-loading for exports and for manufacturing. And now that potentially softens off a bit, now that we are now entering January and February.

Your baseline when it comes to China tariffs was a great deal sort of more serious than what we've seen so far. Has that baseline shifted or is there always that degree of uncertainty because there's so many different ways that this would play out. If he gets a deal, if there isn't a deal, if there's broader issues that might result in a more hawkish approach from the new administration.

Well, absolutely. I would definitely agree there is a lot of uncertainty at this point in time. So our baseline is we're not in the most aggressive scenario of 60% tariffs. We're looking for somewhere in between around 40 or 30 to 40% or so. So clearly, Trump starting off with 10%, I would say, is slightly positive. In terms of the China response yesterday, it was also very, very targeted. So I would say both sides are kind of positioning for there to be some sort of a negotiation.

However, with regards to negotiating and whether there will be a successful negotiation, I think there are still a lot of issues which both sides will still need to work on. And probably that will mean that what we saw over the past two days is more of an opening salvo. It just allows the two sides to come to the table, talk a bit more, and potentially there will be more escalation further out. We're just at the beginning of Trump's term. Both sides are still feeling each other out. Of course, there are pressures from China's side as well.

But there's also pressures both ways. If we do see a massive escalation of tariffs, our estimate is in terms of the GDP drag on U.S. growth, it can drag down U.S. growth by about 110 basis points over several years. It can push up inflation by 70 basis points. So that is also going to impact inflation.

Eddie, always great to have you with us. Eddie Cheung, Senior Emerging Markets Strategist at Credit Agricole CIB.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

In 15th century Florence, the great inventor Leonardo da Vinci dreamt of creating a flying machine. But something kept getting in his way. Admin. Piles of it. Luckily, Leo used the smart buying tools on Amazon Business, so he could work more efficiently. With the extra time, he not only invented the flying machine, but actually built it. Magnifico. Incredibile. Splendido. Whoa, easy there, Leo.

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