Transcripts For BLOOMBERG Bloomberg Technology 20171229

Powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Bloomberg technology is up next. Cory im cory johnson in for emily chang, and this is lumber Technology Bloomberg technology. After massive gains, can be tech continue its run . And President Trump resizes amazon on twitter. Should the tech giant be worried. And more from our best conversations of the year with candid discussions with c palmer and meg whitman. The sector outperforming the broader market, breaking records , up nearly 30 for the year i did not see the final numbers,. Pretty dam close to that it was a really amazing year. Just across the markets, i think. You have been investing in tech as long as i have known you. What a run. David it was a good run, but it. As a nasty close today in the scheme of things, i think what really distinguished tech was that growth was scarce and secular growth stories, as characterized by corey you mean topline growth in technology . David i mean topline and Earnings Growth and the stalwart in the just cap the stalwart and the largest cap name in the s p was apple. Corey it also seems there were not at least i did not notice there were years when software and service was the thing. There were years when hardware or even consumer facing stuff with the thing. This year seemed to have been driven by him in a in a in m a. Semi. Subsectors in nvidia and names like that very strong. You had broadcom. Broad performances as well. As you noted, you had m a activity, broadcom going after qualcomm. That really popped that stopped with the end of the year. Cory where do you see growth coming from on the topline . A lot of people were short, just continue to blow through estimates, the stock continue to rise. I did not see the big candidates. Where do you see the best opportunities for growth Going Forward . David first, you have to look global. Tech is a Global Growth the nominal on. Some of the most successful have much higher growth rates internationally than they do in the u. S. I think you have a global digitization towards tech. Tech as an infrastructure, the secular shift the cloud, the use of mobile, if you will your fortphone is the storefront online shopping. In the internet as the forastructure of choice both enterprise and consumer activity. Cory give me some names you like that you have done some work on, or names you do not know anything about. Do you remember when we fan into each other and a hallway in a hallway . I was doing a story from when i worked with another network, and you were there meeting with management trying to learn a little bit more about the company to make the investment. You have been doing this so many years, i wonder what research you dont up. You dug up. David thanks. I will probably run into you at one of those hallways at ces. Cory explain how you work that conference. David its a madhouse, but what is really important is the opportunity to engage with management, to see the actual in practice. One of the most compelling secular Growth Trends is the continued growth into cloud. The cloud is a place called the data center and the rehosting of data Enterprise Applications into that environment is compelling. Ory what kinds of companies . David in the bay area, names x,ke echo next equine hosting many of the same names we talked about but also the conversion of enterprise compute. Within that data center are chips and i chips, server boxes. Calm boxes com ai chips. Cory Interesting Data center play. Do you like the structure for that business . David the reit has some unique attributes, and that is the requirement that some 80 gets as earnings. Ut those are real cash earnings. The challenge in a raising rates environment is that they tend to be very ratesensitive. See a reflate coming off the tax bill that was approved in december, those could be challenged in terms of valuation. Higher rates and suddenly Data Center Stocks throwing off what is essentially a Dividend Training along with other reits like real estate trading along with other reits like real estate reits. David exactly. That actually works to the advantage of some of the Fast Software names because those tend to be a distant payback opportunity set. Cory i dont understand. What do you mean . David a lot of Tech Companies run two sets of numbers. Earningsngs gaap and pro forma numbers. Within the press release are if you will, that channel of both Gaap Earnings and pro forma numbers. In a raising rates environment, investors want more nearterm cash flow as opposed to distant cash flow. Again, if we get this reflate from the stimulus package out of the tax package, i would contend Companies Planning to land and expand and maybe give profits five years out could be challenged names. Cory so it makes it harder in a rising rate environment for not doing a lot with profits as opposed to Companies Like sap and oracle that the shift you are going to some of that to the nearterm period, but again, the real swing factor on many of these companies is can you get leverage out of your business marketinghe sales and side and, quite frankly, in the , as thesalesforce company pointed out in recent meeting news, how do you prove the monetization of your existing workforce . Cory a lot of private companies does it matter if we see those Companies Come out . David i think it is terribly important we get a new next generation of public companies. Just as a historical factoid, if you took the nasdaq peak and we were there, march of 2000 the top 15 companies, and you ask where those companies are now, there is only one name in that list that has a higher valuation today than it did in march 2000. Cory that would be . David google . Even beogle would not on the list, when it . David that is the point. Would it . David that is the point. On the list today are the facebooks and googles, which were not even around at that point. The importance is that new Company Formation and coming public into the capital markets. Cory i really appreciated. We have been doing this every year on new years eve for many years. Maybe we will go back to the texas the tuxes next year. We are watching netflix, scrapping cash bonuses for top executives. A new tax benefit eliminate deductions for performancebased bonuses for managers who make 1 million or more, so it is no longer a writeoff. Coming up, one of the biggest battles in 2018 could be the president versus amazon. We discuss why President Trump is taking aim at the tech giant. Nology liverg tech on twitter right now and every weekday at 5 00 on the east coast, 2 00 on the west. This is bloomberg. Cory President Trump has once again criticized amazon. Friday, the president tweeted i did not do a donald trump imitation. That was a missed opportunity. You are welcome to do in imitation of the president. You are imitating Business Analyst donatelli about the business of the post office. Can the post office just decide to pick one customer and charge more money . Course. No, of the problem with the post office has nothing to do with amazon. It is a Government Agency forced to act like a forprofit business, and it does not do that very well, of course. Rates are decided by an independent or. They are generally too low for most of what it does. An independent board. It is required by law to deliver to every address in the united states. The post office would like to see genuine reform of how they operate so they can set rates more competitively and maybe not delivered to some places that are really expensive to get to. Cory we talked this morning, i pointed out that amazon they do not tell us how their business works, but they do tell us about their shipping costs, which are massive, far exceeding their shipping revenues. Shippings they have an were as high as 7. 2 billion last year. They are expected to be 30 higher this year. Alex sure. The reason they get such a good price from the post office it has been reported about two bucks per package is because they are such a highvolume shipper. They are almost certainly the highest volume client. Cory the post office competing with fedex, ups, dhl, and many others outside of the country, but again, those companies do not have the requirement to show up in everyones house every single weekday and on saturday. Right, and potentially amazon could be a competitor to the post office itself. Amazon is working on several different methods of delivering packages itself, including the last mile that the post office handling is handling right now. I dont think the post office has a lot of room to raise prices, and regardless, donald trump certainly cannot order them to. A magazine, work at we had a lot of magazines the liver to a lot of post offices,nd they did their own delivery bypassing the post office, and they made sure there were stories in the local press the post office could see that they were building this capability. There was no intention to actually roll this business out. We just want to the post office to see this when we entered into negotiation about the cost of delivering sports illustrated. Alex would not surprise me if amazon is playing the same game. Cory exactly. What you think amazon is trying to do in terms of competition and putting drones on 60 minutes . What do you think. Alex i would be surprised if amazon can beat two bucks a package, even with a drone. It is not my job to analyze their business, but putting people out of the streets and trucks is expensive. The post office has been doing it a long time and is pretty good at it. It seems like a reasonable cost for amazon to have the post office do that for them. Businessis not a political analyst, but he plays one on tv. Thats for joining us. Coming up, apple apologizes for slowing down older iphones. Thewhile, within a look at top stocks of 2017. This is bloomberg. We take a look at the top stocks of 2017. This is bloomberg. Cory i know you are wondering what the Top Performing ipo was over the last year. It was roku. Roku had a big run. Three months into the deal, they more than doubling since hitting in september. On the other end of the spectrum, blue apron has seen shares fall by more than 50 since its debut in june. Kind of sick to the stomach on that one. Apple issued a formal apology for creating a Software Upgrade that hurt the performance of ss. E 6s and 6 while the news is drawing ire from everyone, the company is on track to close out a banner year. Our Bloomberg Technology reporter who covers all things apple for us is here to talk about it. What happened yet of if you have a slightly older battery, last year, apple noticed or some customers started complaining that their phones were crashing, and apple looked at it and realized it was because some of the faster performed by the new operating system were placing greater demand on the power they pulled out of the older batteries, and they were crashing. Cory highperformance apps were crashing because they were written with the expectation of a more powerful processor. Alex exactly. Frankly, this is why they are issuing the new fix, which is that a new battery can cope with this performance. I think lots of the things you can do with, say, multiple lenses on the camera, image stabilization and things like that. Love criticizing apple. I wish they would be criticized more, but i think it is amazing, the backwards compatibility they tried to build into this as they are really racing ahead. This phone is really very different than the one before it and the one after it will have even more capabilities and better power consumption characteristics, much more powerful ship chip. It is a very big technological challenge. Actuallyhink it is interesting to look at it slightly upside down. The hardware in terms of the process or an actual Computing Power within the phone can still run the new software, so in some ways, it is not this kind of thing theyre trying to go for, and that might create a problem for apple because one of the reasons the stock is so high this year is because investors are looking forward to this super cycle. 1 3 of phone owners decide to replace the battery so their phone can still perform well with the new operating system, that begs the question will they not go for the new iphone x or iphone eight 8 . Cory we have seen the time in which people replace devices stretching out over time, not just in phones but computers as well. There was a belief in their cycle with the iphone x. Its not too late for you to shop for my birthday. You dont have to wait. You can go out right now. I will do the rest of the segment by myself if you run to the apple store you are not going to do that. Fine. Alex two years was the classic upgrade cycle. Now it is extended to three years. The iphone 6 came out in 2014, so it is very much in that sweet spot. Cory also interesting what a big product refresh they had with the phone, the watch, and airplay. Growth acrossee all their product sectors. We will probably see more refreshes we did not see new ipads this year we did see is the crazy which expensive ipad coming out. Cory a guy sitting across from me on the plane the other day had one. Alex his elbow extending out into your area as well. You should get the Business Class seats. Cory theres still the of 10 tion yearoveryear Revenue Growth for apple in q4, which concludes this week. Is interesting the kind of relativism we have when we talk about apple. Apple is still growing ahead of pace, but that pace is slightly slower than it was to do for three years ago. People are looking for a repeat of what they saw and 2015, or 2014. It is still growing, just perhaps not as fast as a few years ago. Cory great time. Great time with you this year on tv, radio, Walking Around this newsroom and this great city. You have done such a good job for us. Alex thank you very much. Cheers. Cory coming up, believing in bitcoin. I talk about it coming up. You can check us out on the , andberg app, sirius xm download our podcast, coast to coast. This is bloomberg. You are watching Bloomberg Technology. Lets check first word news. New york citys fire commissioner says the place in the bronx last night was started by a threeyearold boy and a mother who fled the apartment, leaving the door open. He provided more details today. Last nights tragic fire other than 9 11 was the worst loss of life in almost 20 years for our city. The fire occurred in 1990. We are in the midst of the worst month of the loss of life in our city from fire in the past 10 years. 12 people including four children died when the fire raced through their building. Meanwhile in another deadly fire, this one in mumbai, india. 14 killed and dozens injured. An artificial bamboo ceiling burned quickly and collapsed as people try to escape. Turkey has finalized its purchase of an antimissile system from russia. Concernsclosed despite. Turkey is now the first member of the military alliance to own russias most advanced air Defense System as turkey strengthens ties with russia and relations with other western nations deteriorates. The promised her of russia. Lames antirussian hysteria the kremlin hopes the relationship improves, but concludes it takes two to tango. For the second time since september 11, a defense secretary does not visit troops in a war zone. General mattis broke a longstanding tradition of thinking combat veterans. Americans begin fighting in 2002 bytan since secretary donald rumsfeld. Bundle up, record cold grips uch of the northwest. Dozens of cities are setting daily called records because of the arctic blast. The deep freeze is expected to hang around through next week. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Cory this is the Bloomberg Technology. I am cory johnson. Bitcoin trading after a selloff yesterday, nevermind. Bitcoin bouncing off lower 14,000 atl above the close. This is after south korea curb speculation and suggested retail customers might not he able to trade it everywhere they want. Has droppedcurrency from a record high at 19,511. Among the largest holders, cameron and Tyler Winklevoss founded a Crypto Currency Exchange called gemini. Why they made such an early big bet on this asset in 2013. We think bitcoin is like cold 2. 0. Whatever your reasons for investing in cold, scarcity, bitcoiny, fungibility matches or beats gold across the board in all those categories. It is not scarce. It is fixed. You can send it around like an email. It is hard to do that with cold. The market cap is 300 billion or bitcoin, for gold 6 trillion. We think bitcoin disrupts gold. We have said that since the market cap was 1 billion for bitcoin. There is a chance it will be 20 more times from here on out. Is there any reason people are selling gold and buying bitcoin . Anyone who likes the characteristics of gold will be attracted to bitcoin. There was a note talking about that. Not his research, he has seen that yet because etfs have not seen outflows from gold. You could be 20 times more correct than now . We could see another 20 or 30 fold increase in the price of bitcoin. How do you get there . Many people say we could see a sharp correction, then go back up, that it could be a rocky road to get there. Part of that is creating access to it. Gemini. Com, a licensed exchange custodian two years ago. We are onshore, headquartered in new york, so it is easier for hedge funds to get involved. We have some of the worlds most sophisticated traders and prop Market Makers on gemini. Futures a bitcoin contract that is cash settles which allows institutions geting in chicago to exposure to bitcoin with cash and settle out with cash. They dont have to touch or feel bitcoin and they get the exposure to it. The next phase of that would be Something Like an etf product. Filing, and the sec pushed back. Are you planning to refile . What is the next step . We are in process. We dont have to refile because we are on appeal. We are just waiting to be heard by the commissioners. What is the next step with the cme . Cboe is up and running. The price will not be taken from gemini, but a combination of different exchanges. Thats right. Our contract settles through the gemini option. We really love our product because we think it is simple and easy to understand and the arbitrage between the futures price in the spot. We welcome them to the party. Flavor them upnt but we welcome more products and more price discovery in this market. When the contracts were being launched, daily auction volumes can be light on gemini and it can be difficult for the exchange. What are you doing to address that . It is tried and true and used around the world to price equities, so the mechanism is straightforward and simple and will grow as this contract grows , so we are not concerned. , even auctions every day holidays and weekends. Traded,ght be thinly but weekdays are when you want to focus on the contracts. The Largest Global liquidity event in the entire bitcoin market. That is the key. If you look at 4 00 and the constituents of another blended clock ad look at four 2 million print 4 00, a 2 million print is quite large. A lot of these auctions are selffulfilling. You have a contract pricing to it, so it builds the relevancy of it. Unfair to take a snapshot in time before there is something tied to that price. You guys are just one exchange. Prettymes you see diverting prices on these different exchanges, which can make it difficult to trade bitcoin and transact in bitcoin. What do you think causes more price stability . Does bitcoin need to be transactional at some point more than it is right now . It depends on which exchanges. Not all exchanges are created equal. We are the most regulated Bitcoin Exchange in the world. When you look at the prices across u. S. Exchanges, they are regulated, it is a small deviation and they track each other. Aboutre talking unregulated, offshore exchanges in different jurisdictions that are highly risky and of course there will be risk premiums. Sometimes people cant get their fiat currency in and out. s price has been different at times from other exchanges. About getting sophisticated players into the ecosystem. Beenutures product we have building and his life right now, the first ever futures product the the cboe, will create ability to short bitcoin, so there will be a twosided market that will reduce volatility, increase price discovery and liquidity. Cory we shall see. Tyler and cameron winklevoss, founders of gemini. Coming up, Steve Ballmer talks tax reform and the move to make data more simple. This is bloomberg. This is bloomberg. Cory a twitter shareholder and former ceo of microsoft, Steve Ballmer says Tech Companies cannot do more to please fake news. He provided an update on usa facts. Alternate news, no fax. We keep the information current. We are doing now is help citizens run through the topics of the day. We have a walkthrough of the budget, gdp, tax revenue, deficit, and how that compares to the cbo. We make no predictions. People can look at these government proposals in the context of the past, then be able to say does this make sense to me or not. We have a video that will explain to citizens this is a set of data and how to think about Something Like the budget proposal. Emily i know you know these than anyone. Do you have any advice . These things are holistic issues. We look at tax reform, budgets and, and health care. Economics are related. When does it mean to have a budget without tax reform . You have to have a tax plan to have a budget. It would be like an expense plan without a revenue plan. It does not make sense. One of the biggest pieces his health care. They meshanding how yogether would be a kee piece of advice. Emily this is a nature misinformation and fake news. What is the responsibility of platforms . People beingn of fed what ever will make them feedgood, people want to whatever the instincts are. The goal has to be this is how it looks. Some place you have to be able to take a look at stuff objectively. Im not sure you can say that is facebooks job. Same thing with google. That is part of the issue. Things can look authentic. We did a poll and serving people who said i find my information must often on social media and trust that the least. Do think platform should be policing this more . They cant. Over time there needs to be something that is the equivalent of an authenticated user on twitter that says you are who you say you are. Haveuld nice to be able to authenticated sources, so people cannot just hear what a crowd is saying, but hear from authentic sources. Emily what if that information is coming from our own president . Is that a problem if he is spreading disinformation . President , and i know people have problems with that, supportive of that, but he is speaking authentically for himself. , when aa set of facts policy leaders speaks, you can say it is true, not, but it is what he is thinking. Benefits from the ability to hear directly. I get a chance to speak directly on the internet. Not everybody wants to your what people say to one another. They dont always agree. We have seen that with lebron james and the president. Emily some are saying the president is taking it to another level, perhaps even inciting you can war on twitter. Should he be kicked off twitter . Should he be allowed to make these statements on twitter . Everybody has a right to speak for themselves. That includes the president of the united states. That is in the fundamental nature of this country, and an important one. Citizens have an obligation to collect the people who they think will best represent their interests. That gets a chance to be Battle Tested every two years, every four years. Because peopleem have to constantly prove themselves. If people are doing things that are not valued, that will come across. Works, itr system does not take 100 to win. It takes 51 of the Electoral College to win. Cory that was Steve Ballmer talking to emily chang. Bloomberg lp has a partnership with twitter. Check it out. Coming up, meg whitman as she prepares to leave the company after seven years at the helm. This is bloomberg. Stepped downtman in february. We discussed her decision to leave and why now is the right time for her and hp. A transformation that may be one of the biggest transformations in Global Business history from a single in or miss company that was really facing a lot of challenges to four nimble, agile companies. Hpe is well positioned for the future. Works foreen in the some time, and just decided it is right for the next generation of leaders to take you were backward forward. You and i have talked before and i am a big believer in the right person in the right job at the right time. He will be a fantastic ceo. Emily why is antonio the guy for the job, someone who has been there for decades . I have said from the beginning of my tenure that the next ceo needed to come from the inside. When you come from the outside, which i did, the time it takes to understand the people, products, culture, market it takes a long time. Antonio and i have crafted the strategy for Hewlett Packard together. He will execute that strategy as a standalone company. He is a deep technologist. He is a deeper technologist and i am. I had to learn Enterprise Technology. 22 years, he is an Enterprise Technology executive, and i think he will take as company to a place i never dreamed i could. Emily some argue hpe needs of landscape shipped. How do you shift. How do you respond to that . Think about the transformation as hp as a whole, but also hpe. We shrunk down to a 24 billion company, then made 67 acquisitions come the largest fantastica, a acquisition that has opened a growth frontier for the company in the intelligence edge. That saids published the edge will eat the cloud because so much data is being generated at the edge that it will require storage at the edge to get those insights. I think the company is in very good shape. Dependent on the commodity server business than we were six years ago. We have value products and growth products. We are the leader in highperformance compute. We created a whole new category with our product synergy. Pricing so you can keep workflows as you pay and consume storage. A are in a good place with coherent strategy match to the needs of the market now. Do youhow cute turn around Enterprise Spending . That takes a certain percentage of our market, a largely the commodity server oriented business, but many workflows are staying on premises. A recent trend is a multicloud strategy. Some workflows and a public cloud, some in a managed service provider, some will remain on premises, and we have seen premises move back on because it has gotten expensive in the cloud. Enable ao be able to hybrid solution for customers and find the right mix and where their workflows should live here it live. Company called Cloud Technology partners that helps companies figure out where those workflows should go. The edge is as much pressure as the data center is under, the edges not and growing like weeds. Emily when you say data will eat the cloud, what did you mean by that . The edge is going to eat the cloud. There is an explosion of data at the edge. The edge is anything not your data center. ,ensors and jet engines hospital beds, irrigation equipment. Beingis tremendous data generated at the edge on every factory floor. That data is being generated and the Companies Want realtime insights from that data and the ability to make real changes to what they are doing on the factory floor, oil rig, hospital bed right then and there, and the Consumer Insights and the industrial insights are happening at the edge as opposed to the data center, and it isnt dragging a long compute and storage, and the growth is tremendous. My prediction is that in another decade the amount of compute and storage at the edge will outstrip the data center. Cory that was meg whitman talking to emily chang. That does it for the last Bloomberg Technology of 2017. We are Live Streaming on twitter. That is it for this year. Have a happy new year everyone. Bloomberg technology will be back on tuesday. This is bloomberg. David what would you say are the greatest pleasures you have received . Or what you are most proud of . Ok. Thank you. This is good. [laughter] david i watch your interview shows. I know how to do some interviewing. I was really busy. Busy building this company. Diseases have been taken, i will take a tax. Hello, general powell. This is ronald reagan. Yes, sir. [laughter] actually i think it was my husband who set the interview up, to be honest with you. I am still paying that finders fee