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‘Inside Out 2’ box-office success helps movie studio turn around its fortunes

Disney’s DIS 2.49%increase; green up pointing triangle streaming and movie businesses shifted into high gear last quarter, picking up the slack from the theme-parks unit, which has begun to show signs of strain.

The entertainment giant’s streaming unit, which includes flagship platform Disney+, general entertainment service Hulu and the sports-focused ESPN+, became profitable one quarter ahead of schedule, producing operating income of $47 million on $6.38 billion in revenue, Disney said Wednesday.

Overall, Disney swung to a profit of $2.62 billion for the quarter from a loss of $460 million a year earlier, when the company took substantial restructuring and impairment charges. Revenue rose 3.7% to $23.16 billion. Both results exceeded Wall Street expectations: Analysts polled by FactSet had anticipated net income of $1.94 billion and revenue of $23.08 billion.

Disney raised its forecast for full-year growth in adjusted earnings per share to 30% from 25% and said it expects both streaming profitability and the company’s number of core Disney+ subscribers to grow in the fourth quarter.

While Disney’s quarterly streaming profit was small, the shift in that unit’s fortunes is symbolically important. Since the launch of Disney+ in November 2019, Disney has lost more than $11 billion to the streaming wars, as competition from rivals and rising content costs forced the company to spend more to produce and license TV shows, sporting events and movies than it was generating in subscription fees, quarter after quarter.

The company raised the price of its streaming offerings several times over the past couple of years, which it said helped boost subscription revenue growth. On Tuesday, Disney announced a new round of price increases for nearly all of its streaming plans, effective in October.

More eye-catching was the overall performance of Disney’s Entertainment unit, which also includes its movie studios and legacy television business.

The division that includes theatrical film releases reported income of $254 million, up from a loss of $112 million a year earlier and its first profit since early 2022.

Disney said the result was driven in large part by the strong box office performance of “Inside Out 2,” the coming-of-age animated feature produced by Disney-owned Pixar. The film opened in early June, just weeks before the fiscal quarter ended, and has since sold nearly $1.6 billion in tickets at the global box office, becoming the highest-grossing animated film of all time. The runner-up is another Disney title, 2019’s “Frozen II.”

Disney said that it expects the theatrical film division to produce a similarly sized profit next quarter, when investors will see the impact of “Deadpool & Wolverine,” from Disney-owned Marvel Studios. The film generated the highest-ever box office gross for an R-rated movie when it opened last month and has so far earned $824 million in global ticket sales.

Last year, Chief Executive Bob Iger, who returned from retirement in November 2022, said Disney’s movie studios had hit a rut and that its “performance from a quality perspective wasn’t really up to the standards that we set for ourselves.” He vowed to make fewer movies and focus more on quality.

Strong results from the entertainment unit made up for softness in the Experiences division, Iger said. “With our complementary and balanced portfolio of businesses, we are confident in our ability to continue driving earnings growth,” he said Wednesday in a statement.

The Experiences unit, which includes Disney’s six global theme-park resorts, a cruise line, consumer products sales, videogame licensing, and other businesses, saw revenue increase slightly to $8.39 billion. But operating income fell 3.3% to $2.22 billion despite steady park attendance numbers and per-visitor spending, largely because of increased costs and soft consumer demand toward the end of the quarter, the company said. Analysts polled by FactSet had expected the division to produce $2.3 billion in operating income.

Disney forecast more challenges for the theme parks business. The company said it expects operating income in the division to fall by mid-single-digit percentage points in the fiscal fourth quarter, because of continued softening of demand at its U.S. theme parks, competition for tourist dollars at Disneyland Paris from the Summer Olympics, currently being held in the French capital, and softening of demand in China.

In recent years, the theme parks business has emerged as the company’s most reliable generator of profit while other legacy businesses have declined, especially cable TV. Revenue from the division that includes theme parks has represented 30% to 40% of Disney’s overall sales for most of the past decade, but the division’s share of operating income has grown steadily, to 69% in fiscal 2023 from 39% in 2018.

This year, it became clear that the parks business was hitting some turbulence when Disney unexpectedly reported that operating income in the segment would likely be flat for the June quarter. The company said it was seeing “some normalization of post-Covid demand.”

Disney rival Comcast, which owns and operates the Universal Studios chain of parks, reported weak results in late July, mostly because of lower attendance at Universal’s domestic parks. The company said it expects lower attendance to continue into next year.

“Those Comcast numbers were scary,” said Doug Creutz, an analyst with TD Cowen. “Obviously, there’s been a slowdown in demand. Going to the parks is an expensive trip, so you’ve got to feel at least somewhat comfortable with your economic situation.”

Blaze in South Korea prompts debate over whether electric vehicles should be allowed in the country’s ubiquitous underground parking lots

SEOUL—It took just seconds for an underground South Korean residential parking lot to be engulfed in flames. The culprit: a Mercedes-Benz EQE electric vehicle that hadn’t been charging.

The blaze incinerated dozens of cars nearby, scorched another 100 vehicles and forced hundreds of residents to emergency shelters as the buildings above the parking lot lost power and electricity. Nobody died, but the fire took eight hours to extinguish.

The blaze dominated national news in South Korea. Some organizations are pushing for EVs to be parked outdoors, residents are protesting and lawmakers are proposing new safety measures.

The consternation in South Korea—home to Hyundai Motor, Kia and top battery makers – represents the latest test of faith for an EV industry dogged by safety concerns. Internal-combustion-engine cars are more likely to catch fire than EVs, according to South Korea’s national fire agency. But when EVs do burst into flames, the rechargeable lithium-ion batteries get hotter and the fire takes longer to stamp out.

In recent years, GM recalled tens of thousands of its Chevrolet Bolts in the U.S. over risk of battery fires. Hyundai pulled roughly 80,000 electric SUVs after roughly a dozen caught fire. Last September, a Nissan Leaf ignited while charging in Tennessee, and the fire required more than 45 times the water needed for a gas-powered car to be extinguished.

Automakers have grown more cautious about EV launches amid modest demand. Sales of fully electric models in the U.S. rose 6.8% through the first half of the year, according to Motor Intelligence data, a sharp deceleration from near 50% growth in 2023.

The perceived risk of EVs is particularly acute in tightly packed South Korea, a country roughly the size of Indiana with roughly 52 million people. Seoul, the capital city, has a significantly higher population density than New York or Tokyo. Roughly half of South Koreans live in the greater Seoul metropolitan area.

Outdoor residential parking lots are relatively uncommon. The nation’s ubiquitous high-rise apartments often feature underground parking, where firefighters must contend with restricted access.

The country had already been on edge about battery-related fires, following a blaze at a lithium-battery factory in late June that killed nearly two dozen people. The Mercedes EV blaze, in the port city of Incheon, occurred last week. Then, on Tuesday, a Kia EV6 caught fire in an apartment in a central South Korean town.

Mercedes-Benz said it would cooperate with local authorities to determine the cause of the fire, a local spokesman said. A Kia spokeswoman called the incident isolated and added the firm would work with authorities to determine what went wrong.

In recent days, LG Display recommended that employees at its main factory complex park their EVs outside. The country’s main international trade association, whose offices are located in central Seoul, said it would accelerate plans to relocate EV charging ports to its aboveground lot. One of the country’s largest telecommunications firms, KT, has held discussions about barring EVs from parking underground.

A South Korean lawmaker on Wednesday proposed requiring specialized fire extinguishers and equipment to be installed in areas at risk of EV battery fires. Some apartment complexes are proposing measures such as demanding EV owners sign a pledge to shoulder responsibility for any accidents.

After seeing an EV catch fire on the side of the highway earlier this year, Ha Won-jun, a 54-year-old film director in the South Korean city of Namyangju, proposed to his apartment’s residents group that the complex’s EV charging stations be relocated above ground. The suggestion has gotten minimal uptake so far. But that may now change due to the high-profile EV fire.

“Now I anticipate this to be pushed forward quickly,” Ha said.

The relative ease in finding EV-designated parking spots in South Korea had been one reason why Choi Kyung-seok bought a Kia EV6 two months ago. He also likes the fuel-cost savings. “I don’t think the risk of fire will make us forgo EVs,” said Choi, who keeps a fire blanket in his trunk.

SAN FRANCISCO, Aug 7 (Reuters) - For U.S. chip giant Intel, the darling of the computer age before it fell on harder times in the AI era, things might have been quite different.

About seven years ago, the company had the chance to buy a stake in OpenAI, then a fledgling non-profit research organization working in a little-known field called generative artificial intelligence, four people with direct knowledge of those discussions told Reuters.

Over several months in 2017 and 2018, executives at the two companies discussed various options, including Intel buying a 15% stake for $1 billion in cash, three of the people said. They also discussed Intel taking an additional 15% stake in OpenAI if it made hardware for the startup at cost price, two people said.

Intel (INTC.O), opens new tab ultimately decided against a deal, partly because then-CEO Bob Swan did not think generative AI models would make it to market in the near future and thus repay the chipmaker's investment, according to three of the sources, who all requested anonymity to discuss confidential matters.

OpenAI was interested in an investment from Intel because it would have reduced their reliance on Nvidia's chips and allowed the startup to build its own infrastructure, two of the people said. The deal also fell through because Intel's data center unit did not want to make products at cost, the people added.

An Intel spokesperson did not address questions about the potential deal. Swan did not respond to a request for comment and OpenAI declined to comment.

Intel's decision not to invest in OpenAI, which went on to launch the groundbreaking ChatGPT in 2022 and is now reportedly valued at about $80 billion, has not previously been made public.

It is among a series of strategic misfortunes that have seen the company, which was at the cutting edge of computer chips in the 1990s and 2000s, stumble in the era of AI, according to Reuters interviews with nine people familiar with the matter including former Intel executives and industry experts.

Last week, Intel's second-quarter earnings triggered a stock price decline of more than a quarter of its value in its worst trading day since 1974.

For the first time in 30 years, the tech company is worth less than $100 billion. The erstwhile market kingpin - whose marketing slogan "Intel Inside" long represented the gold standard of quality - is still struggling to get a blockbuster AI chip product to market.

Intel is now dwarfed by $2.6 trillion rival Nvidia (NVDA.O), opens new tab, which has pivoted from video game graphics to AI chips needed to build, train and operate large generative AI systems like OpenAI's GPT4 and Meta Platforms' (META.O), opens new tab Llama models. Intel has also fallen behind the $218 billion AMD (AMD.O), opens new tab.

Asked about its AI progress, the Intel spokesperson referred to recent comments by CEO Pat Gelsinger, who said the company's third-generation Gaudi AI chip, which it aims to launch in the third quarter of this year, would outperform rivals.

Gelsinger said the company had "20-plus" customers for the second and third generation of Gaudi and that its next-generation Falcon Shores AI chip would launch in late 2025.

"We are nearing the completion of a historic pace of design and process technology innovation, and we are encouraged by the product pipeline we're building to capture a greater share of the AI market going forward," the spokesperson told Reuters.

GAMING CHIPS SWEEP AI

On the OpenAI front, Microsoft (MSFT.O), opens new tab stepped in to make an investment in 2019, propelling itself to the forefront of the AI era triggered by the 2022 release of ChatGPT and a frenzy of activity among the largest companies in the world to deploy AI.

Although in hindsight the prospective deal was a missed chance for Intel, the company has been gradually losing the battle for AI supremacy for more than decade, according to the former executives and industry experts interviewed.

"Intel failed in AI because they didn't present a cohesive product strategy to their customers," said Dylan Patel, founder of semiconductor research group SemiAnalysis.

For more than two decades, Intel believed the CPU, or central processing unit, like the ones that power desktop and laptop computers, could more effectively handle the processing tasks required to build and run AI models, according to four former Intel executives with direct knowledge of the company's plans.

Intel engineers viewed the graphics processing unit (GPU) video gaming chip architecture, used by rivals Nvidia and Advanced Micro Devices, as comparatively "ugly," one of the people said.

By the mid 2000s, though, researchers had discovered that the gaming chips were far more efficient than CPUs at handling the intensive data crunching necessary to build and train large AI models. Because GPUs are designed for game graphics, they can perform an enormous number of calculations in parallel.

Nvidia's engineers have spent years since then modifying the GPU architecture to tune them for AI uses, and built the software necessary to harness the capabilities.

"When AI hit ... Intel just didn't have the right processor at the right time," said Lou Miscioscia, analyst at Japanese investment bank Daiwa.

NERVANA AND HABANA

Since 2010, Intel has made at least four attempts to produce a viable AI chip, including acquiring two startups and at least two major homegrown efforts. None have made a dent against Nvidia or AMD in the rapidly expanding and lucrative market, according to three people with direct knowledge of the company's internal activities.

Intel's entire data center business is expected to generate sales of $13.89 billion this year - which includes the company's AI chips but many other designs too - while analysts expect Nvidia to generate data center revenue of $105.9 billion.

In 2016, Intel CEO Brian Krzanich sought to buy its way into the AI business by acquiring Nervana Systems for $408 million. Intel executives were attracted to Nervana's technology, which was similar to a tensor processing unit (TPU) chip made by Google, according to two former executives.

The TPU - specifically designed for building, or training, large generative AI models - stripped away a conventional GPU's features useful for video games and focused exclusively on optimizing AI calculations.

Nervana enjoyed some success with customers including Meta Platforms for its processor, though not enough to prevent Intel from switching horses and abandoning the project.

In 2019, Intel bought a second chip startup, Habana Labs, for $2 billion before it shut down Nervana's efforts in 2020.

Krzanich did not respond to a request for comment for this article.