tv Bloomberg Technology Bloomberg July 30, 2019 5:00pm-6:00pm EDT
emily: i'm emily chang in san francisco and this is "bloomberg technology." next hour,n the apple coming in with third-quarter results. revenue from wearables passing the ipad for the first time. revenue from services hitting an all-time record. sales in china not as terrible as some had feared. plus, the chairman of the
chinese telecom giant huawei says there has been a dramatic slowdown in sales growth in the midst of the trade war. he hints at even tougher days ahead. capital one shares drop after a data breach. they say data on 100 million customers hacked. all of it stored on amazon web services. a former amazon employee has been charged. shares spiking after hours after reporting third-quarter results. revenue topped analyst estimates. apple saying it remains optimistic about potential sales of new iphone models set to hit the market in the fall. for more on apple earnings as they are unfolding, we are joined by max from bloomberg businessweek, with me in the studio. walk me through this. iphone sales missed estimates,
services missed estimates, the forecast beat. what about all of these other indicators? is an interesting report. i would have said there would be no way they would be on top and bottom line. wearables was a big plus. they also used about $21 billion of cash on the quarter to repurchase shares and increase the dividend. they did some other things to kind of help along which initially you would have thought would have been a tough quarter for them, at least based on how they missed estimates on revenue and also services. we have the president warning that the trade war may not get that are anytime soon.
if tariffs come into play on the iphone, what do they do? onthey have been counting expansion, selling iphones in china. the outlook is not great because you have, as you said, the possibility of tariffs, further barriers. also, these chinese companies will be pushing harder in the domestic market in china. there is potentially government helping those companies along. lots of quote unquote headwinds for apple. thoughvices thing, even it is not exactly where they would like it, it is pretty strong. this has basically been an iphone company for years and is now below apple's revenue. it is probably a good sign because we have heard tim cook
say over and over again that they want to increase and it is finally happening. cook speaking now saying he is thrilled to see a return to growth. how concerned are you about this tariff issue? whammys kind of a double . you have retaliatory tariffs in regards to certain things like glass covers, red nice sensors that are shipped into china that could be potentially on a tariff watch with the chinese government. with the chinese government. the big question going forward is just what does apple do? do they try to raise prices, they already have extremely high selling prices compared to their competition, or do they absorb it into the profit margin, where
incomes annual average in india and china that are a fraction of the u.s. it is issue -- it is an issue in terms of trying to model out what will happen with these tariffs. record iny did hit a the services business but in order for that to grow, they keep having to get devices in the hands of consumers. >> is kind of a circular thing , on one hand, services are replacing iphone sales but come on the other, you can't have services without iphones. are they making this revenue because services are really good or because they have set up this business we really have no choice. and wantve an iphone
to buy an app, that is recurring -- thatthat will weigh will not go away at least for a long time. is this a powerful, mature company flexing its muscle and collecting revenue? if you see lots of growth ahead, you will be much more optimistic. emily: tim cook saying wearables and services now approach the size of a fortune 50 company. also saying that trade in helped with iphone sales in the last quarter. you are invested across big tech, as i understand it. the ftc say specifically they have opened an antitrust investigation into facebook. the doj looking into big tech in general. >> that is a caveat that is completely different than, say,
the 1990's, microsoft getting investigated in kind of a similar situation. it came out as a low fine. all of a sudden, facebook pays $5 billion. it is really unprecedented and something to be concerned about. quite frankly, it doesn't seem the street is that worried. good advertising revenue growth. , ier than paying a fine don't see them breaking google up for facebook up. it just seems like it is something that is out there like a black cloud. it doesn't seem that wall street really believes that they will come in here and break this up.
emily: we are expecting new iphones to be unveiled in september. our colleague mark gurman has reported these will be incremental upgrades, not a design overhaul. they are going to bring in more revenue in general than we thought they would. max: that is a good sign obviously if you are an investor. these 5g phones, i think people talked about apple going 5g next year. that could open up a lot of territory in terms of new services, new experiences. maybe all of a sudden your watch gets much more useful. the watch is doing well. this is this is bigger than the bigger this business is than the ipad right now. see if be interesting to
5g can bring it all together somehow. emily: tim cook saying the app store all in the double digits. the and monthly viewers on the apple tv app are up -- he is saying monthly viewers on the apple tv app are up 40% year on year. what are you most excited about. apple plus, apple news, applecart, apple arcade? dan: when you look at the service segment, it is kind of a third, a third, a third you have the apps. you have apple care which nobody talks about, where if you break your phone they will replace it or fix it. there is the tv. they came out with a new package on apple tv. it was met with not much of an applause compared to netflix, amazon. you see more people writing
apps, more gaming. , this music,ion is the tv. than aants to spend more billion dollars in content, try to compete with netflix. i think that is the more exciting component on the service side, seeing what they will do on the entertainment side. emily: we will be speaking about huawei a lot later in the show. a leader in 5g and competitor to apple in the smartphone business, and has become sort of a pawn in the u.s.-china trade war. apple isn't putting out a 5g phone this year. we expect that next year. does that mean apple will be behind? dan: that is always the concern, that huawei or maybe samsung will be ahead of them. the next cycle is this 5g.
the possibility of a foldable phone is being talked about going into 2020. as you mentioned before, the isnes coming out this fall not really going to be viewed as overly dynamic in forcing people to upgrade. 60t roadmap to 5g and also with the acquisition of the modem business from intel, all very interesting for apple going forward. emily: tim cook confirming on his call that apple card is launching in august. they are doing that in partnership with goldman sachs. dan morgan, thanks so much for stopping by. max, you are sticking with me. also, chipmaker amd reporting earnings. shares fell after the company
shenzhen campus. they talked about how they can survive without google's android operating system. >> we don't know when the u.s. will make the decision on android and when that decision will come. we have to make preparations for our products. we will evaluate our strategy for the overseas market. if we are not able to use android, we have the ability to develop our own operating system and ecosystem which would become the basis of our services to the customers. tom: give us a sense how much you have had to mitigate the supply chain. have you mitigated these changes or is there more to be done? >> the list put into place by the u.s. was disruptive to our supply chain as we had already made plans to use components
from the u.s.. u.s. suppliers suddenly stopped supplying us. we had to make adjustments including our process of purchasing, manufacturing, and delivering products. we will do the adjustments. we will change to other suppliers and use our own chips for the core components. i think the damage to the u.s. suppliers is even bigger than it is to huawei. we will have to manage continuity internally. the damage to the u.s. supplier is direct as they lose a customer. if the u.s. removed while away from the entities list, that would be a solution. tom: what impact are you seeing on demand for your 5g equipment given the u.s. campaign to block access to huawei? >> although the u.s. has been launching a campaign among its allies, it is up to each country
to decide its partners based on demands, telecommunication demands, and infrastructure demands. i think now there would be some impacts in places like australia, but there are others willing to work with huawei. tom: when it comes to components, you say you are blocked by some key suppliers. can you give us clarity on of those suppliers are and the success you have had, or not, of finding alternative suppliers? >> we might have some components we can't buy from the u.s., but we will use our own components to supplement. software operating systems like google's operating system and ecosystem haven't resumed business with us yet. we hope to see good news, but if there isn't any, we will try to enhance our own capabilities.
away toyou expect while -- expect huawei to be part of the negotiations when negotiators meet in shanghai? do you welcome the backing of the chinese government for your company? >> huawei is purely a company. when two countries talk, they talk about topics. in the discussion between china and the u.s., they will talk about big topics. huawei only needs to do its job. patch up the holes, manage continuity, as well as ensure delivery. we do not sell to the u.s.. what we do is a solid job in making sure the products are delivered to our customers. emily: here to continue the partner atn, a
ventures, and max chafkin. saying, we will either get a good deal or no good deal -- or no deal at all, which can't be good news for huawei. companiesig telecom are dependent on globalization, global supply chains. for huawei, they are talking about patching the whole lacking the android system, that is a big hole. a lot of powerful consumer electronics companies have tried to develop their own systems and it has pretty much been unsuccessful. mostsoft is probably the valuable company in the world, the windows phone isn't anywhere. it is hard to see huawei getting it together quickly. i think they need a deal. >> i think this is a short-term problem for huawei.
in the long term, they realize they have to get off u.s. dependency on software component -- on smartphone components and software. i think that is one of the reasons why huawei will try to develop its own system. gone in product's haven't down, they have gone up. that cannot be good for guys like samson. -- samsung. emily: you are saying that no matter how the trade war resolves, that the damage is already done, that chinese companies will focus on being more self-sufficient. om: exactly. they are one of the largest tech markets. it makes sense to not be appended on others. the wholee the hole --
2025 white paper out there. i think that becomes more critical for them after this trade war. emily: so it doesn't matter if the trade war ends in three hours, months, years. 2025 is a long way away. maybe not in the scheme of national planning or whatever, but it will take some time for china to get its motives and software -- its modems and software to where these u.s. suppliers are now. if chinese consumers can only by chinese phones, then huawei will grow, and it will hurt apple, samsung, and all these american companies that have counted on china is a market. in thei'm interested tech community about how much of
a threat huawei poses. i have spoken to ceos who don't think huawei poses a threat at all. om: it's the same thing, in the late 1990's, everyone thought microsoft, destroy and it didn't. huawei, because of its pricing makingsubsidizing, it is inroads in africa, places like sri lanka, southeast asia. these were traditionally american markets. in the long-term, this is very detrimental to the u.s. text. -- u.s. tech sector. u.s. companies have to think in three month increments.
inna is a country thinks three year, 10 year national plans. i think that is a challenge we and as silicon valley, technology sector. emily: we will talk about this little bit later in the show. bloombergs max chafkin, thank you. ventures, youue are staying with us. elon musk can't stay off of twitter. what he is tweeting about now in terms of production numbers, next. this is bloomberg. ♪
missed estimates for nintendo. operating incomes fell about 10%. full-year forecast unchanged. apples investor call currently underway. ceo tim cook given a glowing review of how wearable devices fared in the second quarter. more on apple, coming up next. quartersolutely blowout for wearables. accelerating growth of over 50% and a new high watermark for $11.5es, a new record of billion. when you step back and consider wearables and services together, two areas we have invested in the last few years, they now approach the size of a fortune 50 company. ♪
this is bloomberg technology. i'm emily chang. apple shares in the creep after reporting third-quarter results. services the main theme of the quarter, a fifth of total sales. the call still underway with tim cook, extending the company's plan for the new apple credit card being launched with goldman sachs. >> transit integration is a major driver of a broader digital wallet adoption and we are going to keep up this push to help users leave their wallet at home in more instances. thousands ofnote, apple employees are using apple an toevery day and we pl
begin the rollout of applecart in august. us, on malik.ith you have been to every apple event for the last 20 years. so, what is your take on the services business and how do you expect it to evolve? om: i'm surprised how fast it has grown. how mediocreprised many of its offerings are, even now. apple music versus spotify. you can see little differences. apple pay is a great service. clearly better than anything google has to offer in the market. they are like kind of middle-of-the-road in the services, but they have such a huge platform and they can make a lot of money doing what they are doing with services, even if they are just mediocre or middle-of-the-road. how microsoft used to
make money i offering products that are good, not great. emily: do you think any services that will or can become great? om: i think apple pay is a great service. i think i can get better and better with time as the adoption grows in more places. emily: how concerned about you are about johnny ives' exit? or as iphone sales plateau whatever happens, the device itself becomes less important to the overall portfolio, what the new apple looks like. om: i think everything changes. we all grow out of our roles or importance in a company or in life. i think that is the case with johnny ives. i think he along with steve jobs a portfolio of amazing products. the products that have become iconic and society changing. but, he wants to do something else.
apple has the kind of move on too. apple is becoming more of a mature, older company which is not as much as a revolutionary the way it used to be. a big company, a trillion dollar company. it has to behave like one. i talked to you about this previously. johnny ives or summit else, people will come, people will go. this company has to figure out a way to last longer. sort of how it goes from being apple of steve jobs to apple of the future, like walt disney of walt disney to disney company up-to-date. that is the transition apple needs to make. emily: do you think we will see apple continue to innovate radically in hardware and/or software or no? om: radically is a very strong word. i think they will try a lot of interesting things. they still have the design dna. those days of taking wild gambles probably are not going to be there as much, mostly
because steve jobs could get the company to make, bet big on a decision. betting big on cd-rom, usb. those things were pretty radical at the time. we forget how much there was around those decisions. he could do it because he was steve. i think now they have to play it a little bit safe. emily: you really closely followed the telecom industry. what do you think about the choices apple has made, not investing in 5g this year? we are expecting it to come next beingas huawei is penalized by the united states and that could thwart its efforts to grow its 5g business. om: i think 5g rollout in the world has been vastly overstated. i think it is a much slower rollout than most people realize. i think right now, you are
seeing a lot of work between t-mobile and verizon. the rollout of 5g is happening in two, three tiny markets in the u.s. worldwide too, it is a much slower rollout. apple has time to get it right. apple has the time to get the iphone for the 5g world. remember, there is a huge battery overhead for 5g. all these companies talking about 5g, when their battery start running out in one hour or so -- emily: they will not care about 5g. om: samsung is an affordable phone, and how did that work out? i think being early is sometimes not the best decision. emily: historically, apple has not been first. they say they are the best. om malik, thank you so much for stopping by. well, one language should a car speak? 5g or wi-fi? the answer could determine who
leads the way when it comes to developing self driving cars. billions of dollars could be at stake, so could thousands of lives. we have a story. ed: cars that can talk to each other, interact with traffic lights and even see around corners. the advent of 5g could make these real, bringing faster speeds for smart traffic systems and truly autonomous vehicles. but it is not the only option for connecting cars. it's up against a more established wi-fi-based technology. there is a debate about which is better. the choice is between the existing wi-fi standard called dedicated short range 2x, sellingon, or cb the vehicle to everything which would eventually use 5g networks. china was the first to make a decision favoring cellular technology. with recent development in 5g, that could be handing china the early lead. >> their focus is leaading
to this real time-to-market advantage. they would be saving hundreds, if not thousands of lives much sooner than we will as we determine the standard that is best for the long-term roadmap in the western world. ed: in october, china ended the use of c-b2x. in the u.s. and europe, the spectrum issue is unresolved and there is a split on which technology to use. if the federal government mandated a technology today, it's estimated up to 8.1 million car crashes and 43,000 deaths could be prevented. how will the technology differ? both are designed to connect cars directly to other vehicles and infrastructure around them. the cellular tech could harness the 5g network's lightewider network. >> that one millisecond delay in latency in 5g to let you know there is a car coming around the corner is going to be critically
important. today, with 4g, that might be 10, 20 milliseconds. it is important to the safety levels. ed: the wi-fi-based standard has low latency and backers argue it is a better option because the technology is mature and ready for deployment now. supporters of the cellular tech say it has superior range and more secure. bison is a u.s. tv startup that will you -- build its car in china and bring it to market with basic self-driving keep abilities. >> 5g will enable vehicles to talk to different infrastructure. it will enable vehicles to talk to each other. autonomous driving can use up to 1.5 terabytes of data per hour. that data needs to come into the vehicle and leave the vehicle. ed: it can evolve with each new generation of cellular networks starting with 5g. it will be as simple as switching the modem. critics of the wi-fi standard say that technology is outdated and not appropriate for the cars
of tomorrow. so which will prevail? 5g is now backed by a trade group representing more than 100 car manufacturers and chipmakers, including qualcomm. >> they are becoming more and more a taunus, relying on cameras and sensors. once we start blending in both 5g and cameras and sensors, we get to see a far more transfer made of experience. ed: the commission plan was defeated in july, opening the door for a 5g standard supported by audi and bmw. the trump administration has put off taking a decision, but ford is not waking for washington. the carmaker omitted to deploying c-b2x in its cars from 2022. general motors is the only u.s. carmaker promoting the older wi-fi standard. bloomberg new energy finance says in the long-term, the u.s., korea and japan will adopt the cellular option as they aggressively deploy 5g networks. for now, the western world has
left it to automakers to fight it out as to which standard to adopt. ed ludlow, bloomberg news, san francisco. emily: coming up one of the biggest data breaches in history. we will bring you the latest on the capital one hack that compromised the data of over 100 million customers, next. this is bloomberg. ♪
to draw backlash. while the conversation circled onlyd regulation, the industry representative to testify. caroline hyde spoke to him following the hearing. take a listen. >> there were certainly openness to learning. i think the increased global awareness of this asset class, the movement to very significant scale internet companies into the market is bringing a lot more attention both from regulators and from policymakers and lawmakers. in general, i think i saw a readiness to learn. i think there was very real discussion around, is that u.s. missing out on innovation in this sector? are there policies we need to think about developing to more clearly defined regulations in the sector? think positive and it is very encouraging to have a lawmaker attention on a critical
issue like this. >> did you get a sense at all as to whether lawmakers may be prepared anytime soon to move forward on some type of legislation that will provide a little more clarity to the legal structure of the sort of blockchain, crypto space? jeremy: i think we are seeing building interest in legislative initiatives that can better define digital tokens or digital assets. we have seen the token taxonomy act put forward in the house. hopefully, we will see that also sponsored in the senate. i think things like stable coins or stable value tokens like u.s. thear coin and libra, increase of proliferation of digital asset classes outside of the u.s., the movement of companies to leave the u.s. and projects to get started outside of the u.s. is definitely getting people's attention and i is going to lead to ultimately
legislative initiatives that try to both ensure there are appropriate safeguards for investor protection, but also clarity which is much-needed to allow the technology and industry to flourish. emily: that was circle c up jeremy allaire. capital ventures tumbled after a massive data breach expose the personal information of over 100 million u.s. customers. this included social security numbers, names, addresses and other sensitive data dating back to 2005. after receiving a tip, authorities arrested and charged a former amazon web services employee who boasted about the attack on twitter. watching surveillance video obtained of the law enforcement rate on the suspect's home. while over 140,000 social security numbers were accessed, capital one set it was unlikely the information was used for fraud or disseminated by the individual. following the news, the new york
attorney general says her office plans to investigate the breach. joining us to discuss, bloomberg's jennifer. this case seems really unique. first of all, they have already got someone in custody. what exactly happened here? jennifer: very unique actually. one of the unique aspects was how capital one found out about this breach. it really came through one of these anonymous tip lines that the bank sets up to ask hackers to reach out and let them know of these vulnerabilities. that was one of the unique aspects. also, how quickly they responded. that email came into weeks ago and two weeks later, you see them not only disclosing it to the public but in arrest. this lawsuit has been filed. it is unique in a lot of different ways. it will be interesting to see how maybe some of those unique aspects play into how the public receives this, the reputational damage, that sort of thing.
emily: the person who was arrested, paige thompson, already charged with computer fraud and abuse. as a former amazon employee, the data was stored on amazon's web services. how did the suspect get a hold of the data and what did you do with it? jennifer: so, she was able to go in through a firewall that capital one set is not being configured correctly. that can mean a lot of different things. what we heard is you have to be pretty sophisticated to pull off this type of hack. the way these cloud services provider work is they provide the nuts and bolts of the infrastructure you need. then, companies are supposed to layer on on top of that the kind of security and locks and keys that keep the data secure. capital one was saying this is not because we are on the cloud, not because we are a major user of amazon web services. this could have happened to our old physical data centers. it's definitely interesting.
the implications whether or not banks continue to push to using the cloud to store the data, if that slows this down. emily: capital one saying it is unlikely the information was used for fraud or disseminated by the individual, so why did she do this? jennifer: yes, that is the question i think we will get more clarity on as this case rolls along. normally, we actually don't see this data hit the dark web or get monetized, the word people like to use. it takes a while. after a big breach, consumers are in high alert. they are checking their credit reports, setting up free credit monitoring. hackers usually don't like to put it out there immediately to sell it to fraudsters can use it in different nefarious ways. not totally unusual we don't see it yet. then usual part is they already know who did it and it does not seem like she was able to monetize it yet. it will be kind of interesting
to see how that affects the regulatory aspects. there has been investigations launched by different governments. it will be something to keep an eye on for sure. emily: we will see how this one evolves. inzon saying waaws particular was not compromised in particular. jennifer surane, thanks so much for that update. still ahead, u.s. sanctions have taken a bite out of huawei's revenue growth. we will find out why that chinese company is warning about tougher days ahead, next. this is bloomberg. ♪
president trump: china is dying to make a deal with me, but whether or not i will do it is up to me. emily: president trump on tuesday morning after he lashed out on china on twitter saying if and when i in the deal, they will get -- much tougher than what we are negotiating right now or no deal at all. the uppers coming a steven
mnuchin and robert lighthizer are meeting the chinese delegation in shanghai to hammer out this deal. joining us to discuss, tom mackenzie who is outside huawei headquarters in shenzhen, china where he interviewed the chair of the company caught in the trade war's crosshairs. fascinating interview you did earlier. just how grimut he was about the outlook for the company going forward. yeah, it was quite theresting that liang hua, chairman, was relatively frank about their prospects. he talked about the number, the earning numbers, up 30%. the key point and our bloomberg colleagues have been crunching the numbers are the earnings they amassed after the blacklist was put in place, the entity list by trump in may. since then earnings fell from
39% to about 13% after that blacklist. really, liang hua was pointing out the pressure remains on the company, particularly when it comes to its consumer division which makes it more than 50% of its revenue. they did pump out about 118 million smartphones in the first half. compared to 200 million for the whole year of 2018. they are on track to be that number but when they come out with their new smartphone, including a foldable phone they expect to launch towards the end of this year, the question is whether they will get access to google's android platform. if they do, it is clear they expect to see a reduction particular in international sales of their smartphone. the consumer division makes up 50% of the revenue. 5g, he says they are still roaring out contracts. we have signed about 50 5g contracts. they seem to be less concerned about the network side of business. the enterprise is a problem. they don't have access to intel's chips. again, the consumer division
facing pressure. emily: so, how is president trump's fresh lashing out at the chinese as the straight talk happening, how was that being received in china right now? degree, this some is a move we have seen before. trump will tweet before negotiators go in or during negotiations. at surface level, it shows the administration is not becoming any more flexible in terms of these negotiations. he wants a proper deal, a good deal or no deal. the u.s. has said they want structural changes, changes in terms of actual -- intellectual property. china has said you have to meet us halfway. you have to make some concessions. china reiterated the three points it wants, including the removal of tariffs, a more balanced deal, and less onerous demands in terms of purchases of u.s. agricultural products. it seems like the goals between the two sides remains vast. there were some jockeying
leading up to this. the chinese inside has said to its companies you can look to start buying u.s. soybeans. trump meeting with tech executives and suggesting there could be an easing on these products sold to huawei peter that has not happened yet. if we get negotiation to content you in d.c., that will be seen as a positive. emily: tom mackenzie for us in china. thanks so much are your reporting. finally, apple third-quarter results. investors work rewarded with an afternoon trade. its services growth margin is roughly twice that of products. iphonek said the returned year-over-year growth in their stores in june and wearables had a blowout quarter. the china trade situation is not impacting the company much. cook says the vast majority of products are made everywhere including japan, korea, china and the eu, and that there is still an appetite for apple in china. tim: i would like to provide
some color on our performance in greater china where we saw significant improvement compared to the first half of fiscal 2019 and return to growth. we experienced noticeably better year-over-year comparison for our iphone business there than the last two quarters, and we had sequential improvement in the performance of every category. emily: apple ceo tim cook on the earnings call following the company's results. the stock continuing to spike in after hours. that does it for this edition of bloomberg technology. we are livestreaming on twitter. check us out. follow our global breaking news network, tictoc, on twitter. this is bloomberg. ♪
paul: welcome to daybreak australia. i'm paul allen. shery: i'm shery ahn in new york. we are counting down to asia's major market open. ♪ paul: here are the top stories we are covering. entry, 1950's jazz and an -- angry tweet. trade talks begin in shanghai, coming down to the fed rate decision. the president says a small cut will not be enough. april takes off on a