EP 186: Mobile Bottlenecks, Skyrocketing AI CapEx, and the Compute Crunch

**Ben Bajarin** (0:05)
Hello, everyone, welcome to another episode of The Circuit, I am Ben Bajarin.

**Jay Goldberg** (0:11)
Hello, world, I'm Jay Goldberg.

**Ben Bajarin** (0:14)
Well, we had another week, a week that felt like, I don't know, a year between news cycles, market cycles, earning cycles.
I don't even know. But we're going to start and we're going to we're going to go over so many earnings, so many earnings, so many earnings this week. As I was joking with Jay before the podcast, we have a backlog very similar to the hyperscaler backlog. We've got tons of demand for content and only a little bit amount of time slash gigawatts in my analogy to cover it. We're gigawatt and bandwidth constrained. So we're going to cover this in themes. We're going to group the earnings names, which we're going to talk to in to themes. So our first theme is going to be mobile. And the three names we're looking at that for, even though two of them also want to talk about data center, but we're going to focus on mobile, is Arm, Qualcomm and Apple with a little bit of MediaTek thrown in who also reported last night, but thematically. Okay, so your top line take, what did it tell you? I'll tell you my top line take.
And I think there's some very interesting supply chain nuggets in this theme.

**Jay Goldberg** (1:31)
So, not surprising to anyone, the mobile market is weak. There's lots of debate about how the trajectory of it is, is things getting a little bit better, things getting worse.
Mobile market is soft. I don't think it's as bad as the worst case scenarios, we're having it like down 20 percent. But it's definitely, definitely down. And now we're starting to ask questions about what demand looks like for mobile phones next year as well, because that looks like there's a possibility it will be down next year as well because memory, memory costs are going to remain elevated. So, a rough time for mobile, but some conflicting commentary about where that weakness is and what's going on among these companies.

**Ben Bajarin** (2:17)
Yeah, I think there's two central debates. One, are we at the bottom and starting to creep back upwards?
Or two, is this a lasting cycle where two interesting things are compounding? One, prices are being increased. Okay, so we know that and that's across everybody. That's not just Apple. So when people are like, oh, Apple is going to have to increase prices, it's going to hurt their sales. Like the conclusion is not that other people gain. The conclusion is that everybody is going to hit by this and thus turn off consumers across the board. So there is that dynamic. There's another dynamic where it's just tough in the supply chain, as I was saying. I think it was very, very interesting that if you just look at this leading signal, which is Apple, who has the most scale of anyone who makes, let's say premium-ish mobile phones, and if they are behind in the supply chain, trying to catch up, good luck everybody else. Like you are all dealing with a very serious supply chain problem if Apple is sitting there, right? Trying to figure out how to make enough devices, which again, I think is interesting, right? The commentary is not necessarily nobody wants to buy phones. It's that prices are going up. We can't make as many phones as we want. And the dynamic there is a lot of supply chain driven, at least in terms of Apple. I hear mixed things about Android.
I think the low-end part of the market absolutely has nobody buying. I think the medium to high tier still has people interested in buying, and we're up against supply chains to just, we just can't make the same number of phones we did two or three years ago. That's just the reality of it. So there's that as well.
But I'm with you in terms of where does this go? But Apple's commentary, I think, was super interesting because it wasn't necessarily people aren't buying. It's that we're having trouble securing as well as like, one, they got demand wrong, which, okay, fine. That's on you. Two, they're signaling the inability to get the demand that they need, sorry, the supply that they need for their demand, which I think is sort of a question of, could they sell more phones if they got it? I don't know the answer to that, but it sounds like they're going to be constrained. But just not being able to make as many products because of the supply chain is going to have a drag on their numbers.