Transcripts For BLOOMBERG Bloomberg Best 20160206

Valley. An interview with the ceo mark hurd. It is all straight ahead on bloomberg best. Hello. Im scarlet fu. Welcome to bloomberg best. Lets start with a day by day look at the top headlines from the week, which began with good news for google and out for that. Alphabet. Surging in after hours trading. It this is the first time the company has reported earnings just four months ago separating googles main search and advertising. Despite calling it that, it is a way to lower expectations. To other thing they did lower expectations was have a fantastic quarter for their core business. It really, really strong growth in one of the biggest businesses the world has ever seen. Fantastic growth there. The things that stood out to were mobile. That used to be the output the albatross. They are focusing on the things that make them great. This is a technology company. What we saw even though we saw profitability, when you strip out the other vets, the profitability has accelerated. If you put evaluation multiple on that asset and hope for another google to come out of the other vets, which i dont think is that farfetched when you think about health care. Athink it makes for compelling story, more so than what we saw yesterday. Slashing 50 of its workforce and explore Strategic Alternatives for its core business. Companyompany is a putting the for sale sign on the door . Coming in . 13 a share. Sales revenue up 12 . Winding down legacy products, closing offices and looking at selling part of the company. How did you translate what they are saying here about Strategic Alternatives . Are they really explore in a sale of the company . Presentation, talked about selling nonstrategic assets. At some point, she did say that the board was going to be responsible to explore the sale. Alternatives the sale of the company. It depends what we see between now and april. A nothing goes forward with ,ale of the company, or perhaps nonstrategic assets, i think the discussion is going to be based around the entire company. If nothing goes forward with that we now and april, yeah, Marissa Mayer may be in for a proxy fight. It is the largest takeover by a Chinese Company ever. Buy swissbegins to bank. I was running through the numbers again. . Hat does this tell me chinese is serious about having access to technology. Up. Share price did not go there are regulatory concerns. We have been spending a lot of time asking ourselves why is why are they trading solo . Low . Ading so it is the biggest chinese outbound acquisition. We have to wait and see if they can pull it off. Would pose security risks . Yes, that is a way to look at it. U. S. S facilities in the and has to be approved by the government. The Agricultural Sector has implications. Used as a political tool. It raises questions. It was expected the bank of england would hold on their interest rate, but there is a change in the view of when we might see a move on interest rates. We have all my members of the bank of england voting to keep rates at a record low. 5 . Are the walls closing in for a rate hike in 2016 . John, does it sound like we pushed it off a couple of years cushion mar . Whatever i say will be proved wrong by the market. [laughter] it does feel more like 2018, maybe 2017. This must be good news. This is a chart that tells us what the markets are telling us about the rate setting meeting in december 2016. There is a meeting in december 2016. The probability of a hike right now investors tell us, 1. 1 . Six months ago, john, it was 93 . Three ago, 74 . Investors there is more of a december a rate cut in , 29 , then a rate hike. 151,000 adds, you are all wrong. We are still above the threemonth replacement rate, im sorry, moving average. Credit the replacement rate that economists say will keep us ticking along. Unemployment up 4. 9 . This is a very solid report. I would not focus on the headline. I have been expecting a slowdown in payroll job growth given the Unemployment Rate down below 5 . Rateught the unemployment would fall to 4. 9 . The manufacturing numbers are a bit surprising and good news given what is going on with the value of the dollar and the way to bad. 5 . If that keeps up, you are talking about plus 4 with inflation rather low. I would view this as confirmation that the job market is continuing to be strong and that we are getting closer to full employment. Wire was so miserable at 4. 9 unemployment . One of the reasons would be the underemployment rate. There are a lot of people who are underemployed, or working parttime, or not looking for jobs. The deceptive nature of the Unemployment Rate is the problem because it speaks to a smaller and smaller portion of the labor force. Unfortunately, because the fed the that rate and models tailored model to forecast policy, but the are focusing on the wrong thing. Tech talk later on bloomberg best,. An exclusivehas interview with oracle posse omar kurt. We look back at another while the week for oil. Scarlet welcome back to bloomberg best. Im scarlet fu. If the decline in oil prices has been readily markets for months. This week saw the sharpest drop in almost a decade. Some of the Biggest Oil Companies reported earnings. The state of the oil business generated much discussion throughout the week. What is your strategy in Oil Prices Remain where they are now a year from now . I dont think they will for starters. E run scenarios we think deflation will come through. We are a complicated company. One of the changes we are making our reductions in organizations and staff is sustainable for us. We will have to be very, very careful in keeping our costs down. What kind of oil price do you need to break even . In the past, you said you needed oil at 60 a barrel. And 50, we can balance the books effectively at 60, we can rebalance the books. Supplier costs are coming down. There is deflation. We are dropping our own cost down. That number looks like if it is not 60, we targets below that to balance the books. What was your take away from the companies we have seen so far in big oil . We are starting to see capitulation by these companies in different ways. Bp only a few months ago was talking about sizing itself for 60he dollars of oil oil. Chevron used to have a fairly consistent message of oil prices having to come back because supply cuts. Now it talks about protecting its dividend, whatever price it is. Even exxon is not immune. Exxon always talks about being able to invest through the cycle, which really means, sometimes the best time to invest is when everything is cheap. When you look at the present , that is when you ought to be spending. Even exxon is cutting back. How concerned are you about Balance Sheet . What can a cup do when it generates cash . For creditors. It can invest in the future. That is not good for credit ratings. That is one of the reasons we have seen downgrade. Low prices,look at they are difficult to predict. They will sustain dividends because they do not have Strong Enough Balance Sheets for that. The overall price will start to rise, which will be supportive. Years . T a year, five we dont know. Morgan stanley is out for a new oil with a new oil forecast. By the to 29 a barrel Fourth Quarter of 2016. Boone pickens thinks oil is headed in the other direction. What do you know that Morgan Stanley does not . I am not sure sure if we go into a recession, Morgan Stanley could very well be right. Be 50, 60ng to dollars a barrel by the end of the year because you shut down rigs all over the world. You are down now in the United States for oil drilling rates, 1609 down ton from 500 rigs. You are going to see a decline in production fast. Watch out for a recession. Topicing beyond the hot of oil, lets take a look at more company news from around the world this week. Outlook you are sticking to your overall level of guidance. Feel prices have gone down. People want to know how optimistic you are feeling. We had a very good quarter. Saw profits up. As we move into the fourth we are of the year, seeing 6 . That is great news to our customers. We are going to have our best ever profits. We got the best Balance Sheets. Why make the decision to do the buyback . We are profitable and will be found lacking when it comes to rewarding our shareholders. The Holiday Season really delivered for ups. Shares of the company are higher after the Company Reported fourthquarter profits that topped estimates and bucking the selloff trend. Forecasting a strong outlook for 2016. Joining us is david abney, the ceo of ups. Volumesteering Fourth Quarter during peak, we saw an increase in our air business. Next day air was up 10 . Our deferred air was up almost 14 . Overall, you have to remember, we processed more volume than we had ever had before in peak season. David, are you concerned about growth in 2016 in the u. S. I . We are that you year in 2016. If the economy as positive as we would like it to be . No, it is a mixed picture out there. It is driven by the consumer. Consumer confidence is high. These are the first result following an overhaul in which the executive adopted a similar thel to rival ubs shrinking trading unit and increasing wealth management. Lacqua. To francine it is a tough cocktail. How much for bonuses . More than 30 weird more than 30 . Midyear,tabilizes by what our markets concerned about . We had a long discussion yesterday. We really have a disconnect about what we are seeing in the real economy. Sharpe says they are talking mayhe state act fund and need another month to make a decision. Woulds with india this end up being a huge acquisition. Sharp, they have five or six businesses. I cannot imagine anyone wanting the evidence is in front of you. It is nearly bankrupt. They are losing a ton of money. It does not pass the small tests. You are acquiring mobile businesses. Your biggest customer is apple. What is your solution to all of this . You know this is balance has gone on for years. President t the indicated he doesnt want to break up the company. It is not in his hands. He is one of four resident who have come to sharp president s who have come to sharp. You are watching bloomberg best. Im scarlet fu. Among the a list guess, one of the best basketball players, stephen curry. Tom keene went oneonone with gary fisher. Debate at inside the the fed of the how. Thedo you determine in 2016 when of those rate increases . Dont meet to discuss how many be will do in the coming year. There is some discussion, the language in the announcements is we believe it will be gradual, etc. , etc. Like we are going to do it four times. We do not have to do that to make that decision. The results will depend on the development of the economy and being data dependent. If we knew how often it was going to be done, we could get rid of this pair finale a of eight meetings a year and get the whole out of the way. We follow incoming information and we make our decisions on that basis. Not on the basis of a set of predetermined decisions. Have you see the business changing and in the five years . It is going global. Whether it is in asia, india, whether in europe, you find more and more people following the leak and being attached to it. They have done a great job of catering a lot of things we do here in the states to make it more appealing to the worldwide audience. There best ball fans around the world. The yeartoyear contract . Do you like to know it you are going to be for a long period of time . You have to assess the situation. Is doing that for a reason because he wants that his market to get value and all that. Having security is great for some players. Have you called cam newton this week to prep for a championship . I have taken the approach of leaving him be. You are so locked in and focused. I would tell him there is nothing special you got to do. That has got me to the super bowl, but enjoy the moment. Another newsmaker joining us this week was yahoo ceo Marissa Mayer. After they announced a 50 cut to the workforce, she spoke with bloomberg west emily chang. We are very confident in our Strategic Plan for 2016 and beyond to get focused on a few key products. We also have our alibaba stake and one of our most priorities for us is achieving a separation of that stake from the operating business. That is a real way to maximize value. Some of what we have discussed is that we pursued last year. We are working on a reverse spin as well as exploring other Strategic Alternatives. Withlieve that dovetails our Strategic Plan recognizing the most value. Those lets talk about Strategic Alternatives. You are pursuing three different plans at the same time. How far along our discussions about selling the core business all three as being very complimentary. In the core business we are focused on the first being the best version of yahoo we can be. And recognizing the value of the assets we have built here. In terms of the different trends, they are aimed at separating the alibaba stake. They are aimed at maximizing value. We think they can be pursued in parallel. And again, they are complementary as opposed to conflicting. Emily it must be debate among Board Members about the future of yahoo . Charles schwab just left the board. Do you feel that our current Board Members who dont share your vision . , on the board, management and the board are very aligned. Yahoo sll say, situation is complicated. I think that is obvious to everyone. Particularly with some of the assets we have in both yahoo japan and alibaba. With that said, that is one of the reasons why you see we need to have a somewhat complicated solution. And a applicator did pass forward. We need to address how we see the operating business. And see the most value we have from the alibaba stake. You want to make out who the best it can be. If you do end up selling the company, would you view that as a failure . I would say what is good for yahoo is good for me and vice versa. There is not a personal interest that is separated there. We just want to see the best possible future and the best possible outcomes for yahoo for our users, advertisers, employees, and shareholders. Continueserg best, with a silicone valley exclusive. Im scarlet fu. Much more to come on bloomberg best. Changes underway at oracle. The Worlds Largest Software Company is shipping to the product, and leading the charge is mark kirk. Mark hurd. In 2010 he was scooped up by larry ellison. Companysw the president and redwood, california. He talks about his propositions for the business. The prospect of going competition. I would rather have oracle and his approach to handling one of the World Biggest companies. I want to do the best i can. I am cory johnson. This is bloomberg best. Interviews with some of the most important Business Leaders in the world. Certainly one of those is oracle ceo mark hurd. There was a time when there was no acquisitions. There was a time when there were 800 acquisitions. Now, we have a move to the cloud. Tell me what it looks like for the oracle to have such a strong footprint in the developing of cloud software. What has that change been like for the company . Shift, overa big the next five or 10 years. We are going to see a majority of i. T. Shift to the cloud. For us, we look at it as an opportunity. The fact that we have such a strong base, it is going to be important to make those two worlds work together. We are looking at a whole new cloud stack of capability. Through platforms and infrastructure, it can now work with an on premisebased, a huge opportunity for us. Companiesit for newer so much harder to start with the slate clean. Mark customers have a long set of capabilities and applications that are now on premise. They have to run their businesses every day. Do not get me wrong. A bulk of the work is moving to the cloud. However, you are going to need to get applications that work together. The ability to share information. I think it becomes a key advantage. Most of our competitors are purely on premise, or purely cloud. The fact that you can bridge those two worlds is a big opportunity and advantage for us. Theyre also saying it will be so much cheaper. Sources have different different kinds of pricing strategies. Software in the cloud how you make it work, in terms of transitioning . I do not know if i would call it cheaper. I would call it more variable. The elite to shut something off when you dont need it. In order to get a variable price. I do not know if it is cheaper. But it allows you to have a better control over your cost. For us, we love the cloud. We love the on prime world. Premise world. Both Business Models are extremely attractive for us. We are about as agnostic as you can imagine. We have invested in driving our cloud stock, and that is what we are focused on. Competitors like to talk about what you guys are not doing. In particular, there has been a vocal suggestion that cloud growth, in comparison to what you are doing, how do you view your competitors and what they are doing in the cloud . Mark i do not think they are doing much. They have acquired some properties that function separately from sep. Cory you mean things like concur . Mark concur and arriba. Those are both properties they bought. When you look at their core franchises, it is really erp. That is the core franchise that they are built upon. They have not done much work from the bottom up to rearchitect. Software for the cloud. In the short term, you can certainly continue to sell licenses. In the long run, customers want to move the software to the cloud. I would guess by the end of the year, at the end of may, it will probably be between 2000 2500 solutions in the cloud. 225,000 solutions in the cloud. I think s. A. P. Sold none. Cory do you have enough tools . Next,re they going to do when you referred to them acquiring concur, by dairy queen . He is quicker than i am. I do agree the comments. Strategically, it did not look interesting to us. We chose not to buy it. , and then buyegy and build to that strategy. We have done both. Again, it has to make strategic sense to us. Make abouten would as much sense to us as buying concur. It did not align strategically with where we thought the market was going. Cory do you think we will see some time oracle doing a billiondollar acquisition of a serious competition competitor . Mark i will not comment much about that. Cory i guess i am or ask about the philosophy of how you make those decisions . Mark we are disciplined buyers. We do not buy something just to buy it. Cory when you look at valuations, they seem very high right now. How do you look at them . Mark they are high. And they have been high for quite a long. Of time. If you look at our history, we tend to buy the best companies. We do not tend to buy a company on the cheek. We tend to buy the best property in that market, because it is important for us to take a leadership position. Whether we build it or buy it, we want to be the best. We want to be in the lead. Cory do you think it is the time to sit back and wait for valuations to be ready . Just in case things go on sale . Mark it is always an advantage when that happens. If you look back at our history, that is not necessarily driven every decision we have made. We make decisions based on the right thing to do at the right time. What fits best with our strategy. 2010, 2011, we did a couple of acquisitions. They were so important to us. Our fusion product line was just coming to market. Cory, we learned so much about the market. Not just from buying one property, from buying multiple properties. Took asame time, we leadership position in some key segments. Cory what do you feel you have learned from this son acquisition . Sun i wonder if you look back, and that there is one thing you wish you knew then that you did not . Mark if you look back at the sun acquisition, and exit predates me. It brought with it a lot of technology. A lot of customers. Those were the Building Blocks for a lot of other things. Cory there are some competitors that you have that are struggling, and some that are not. If you look at the ones that are in the most trouble, where do you see companies that have the wrong strategy or products . Mark great question. I would rather have our hand than any other hand in the industry. Hardhe reason that it is to make these transitions. There is a reason that not all the other Companies Make it to the other side. It is hard. It is hard to do it in the public markets. Look at the investments we have made in the past several years. We have upped are indeed. When i got here, i think it was about 3. 7 billion. We are on a path to 5. 2 billion this year. Cory huge numbers. Mark huge numbers. We have had to invest to transition. By the way, if we keep that on premise stability in place, at the same time as we invest in a whole new set of cloud capabilities, we have had to build cloud infrastructure. Think about this. We have had to put data centers in over 20 countries around the world. That is like building hotels. Before you can even rent a room. You have to put the infrastructure in place, and we have had to invest in that capability. We have had to build out a larger go to market organizations. Weve had to make all those investments. If you are in the public markets, doing all of those at the same time, it can be a challenge. Re are a lot of companies it is hard to get from here to there. Oracle ceo mark hurd has over 2000 Customer Interactions every year. One of those ceos telling mark heard that they are worrying about. That coming up next on bloomberg best. Cory open back to bloomberg best. Is makingental job sure oracle products get sold. He is talked with so many ceos of so many companies. What are they worried about . Check this out. What it is that you do when companys pullback . Mark when you see a down market, your first instinct is to go hard. Cut your resource revenue. Cut the expenses down. While point, for a the reality is that what happened in downturns is that people do not stop looking. Ideas do not stop. Customers continue to look. They continue to think about things. What they tend to stop doing is buying as fast. The projects continue to mature. , when thingsns is hit an upturn, the projects that have been gestating tend to come to fruition. What happens is that if you cut the resources, you do not get the opportunity cory cory so they are knocking on doors, and your company mark by the time you ran up, you have missed it. We have been doing it in europe, we are doing in latin america right now. Inc. About brazil. Gdp isright now, there at 4 or so. This year, are we cutting our resources in brazil . No. We are going to invest in brazil. It is going to be a strong market for years to come. You look at today, europe is continuing to solidify. Business in europe, we have continued to take market share. We are continuing to invest in the downturn. Cory do you feel like your competitors are gaining market share from the cloud in europe . Mark ok. Are they . Cory the me go back to sap. Y bought a mark we believe the core agenda is to build out a suite of capabilities. Experience, marketing, etc. , those capabilities are at the core. If you think term it networks and expenses in u. S. Midmarket are the core battles, then they are doing great. We would not mind if they wanted to give us the erp base that is in the market. The two most important segments of the Software Industry over the last two years have been database and erp. So, we are very happy if they do not want to overwrite their courtyard he base and they just want to let us have that. Then, they can go do more of what they are doing. Cory he spent a lot of time meeting customers. I wonder what that is like a ceo. Mark one of the most important things you can do when talking to a customer is to listen. They have problems. Are of our customers operating against a backdrop of what you are reporting on every day. The Revenue Growth across the orhas been zero order slightly less than 1 . Way, that was over six or seven years. Most of our customers have problems on the top line. Most ceos left in their seats around four and a half years or so. So, we have a finite window to execute your plan. My job has to be to listen to the plan, and do the best i can to help them achieve it. We think we have an amazing portfolio of capabilities to help our customers alter their top line. At the same time, demonstrate efficiencies and effectiveness on their cost structure as well. Cory how do customers do you talk to every year . Mark a lot. Mark by the way, it is not only thing have to do as part of the job, it is a fund part of the job too. You get to meet some great people with interesting problems to work on. I happen to work at a company that helps them overcome those challenges. Cory do you think there are ioverwhelming issues wonder if there are some overwhelming issues that you are hearing about from Corporate Leaders across the world right now . Mark if you are a ceo, whether you like it or not, you have to grow earnings. I have to please the investors. It is always a challenge. This has always been the case for ceos. Now, you have more activism. Edge is a bit of a sharper on it that there may have been five or six or seven years ago. If you do not deliver now, then there are a few people looking over your shoulder. Sometimes, you have a change in dynamics. The Employee Base is changing. Lenny also be the 50 of the workforce by 2020. Millennials will be the percent of the workforce by 2020. They will be customers two. They buy differently. They work differently. Group,look at them as a and by the way, we are a huge h irer of millennials. We want to know how they think as employees and customers. They are our customers. They tend to be less loyal. They tend to be looking for immediate gratifications. Service matters more to them. They have grown up in an where their ability to complain has been at an alltime high. I did not grow up with yelp, trip advisor i could not come back with all of these mechanisms to express my dissatisfaction. Now, it is a different generation of buyers. They tend to be less loyal. They tend to shift quickly. That causes a problem technically. If you look at a technology perspective, i have to meet the customer in the place for that customer wants to me, when and where they want to me. Customer service at its core is what it is all about. Best up next on bloomberg come up mark hurd tells me about the way to motivate sales operation in a changing world. Cory welcome back to bloomberg best. Here at the redwood campus of oracle. Mark hurd talks a lot about making changes at this company for an entirely different world of information technology. What was it like when you first came to work here . Mark it was great. Look at this facility. It is just amazing. I loved it. Cory daunting . You have a huge organization with its fingers in almost every Major Corporation in the world. Mark i do not know if i would say daunting. I think the transition we have talked about, moving to the cloud it is a generational shift. It is an opportunity for oracle to read the industry. To build out more infrastructure, a platform it is been a lot of work for the r d team. A have done a fantastic job. Friendly, a lot of work of putting out the infrastructure, the data structure, and going to market. I do not know if i would call it daunting, but it has the energized about oracle. You, very open with energized for the team. Larry thinks generationally. The willingness to go through what we are going through, not every company is able to do this. We have a great team of people, and the opportunity is exciting more than daunting. Cory managing the sales team here, it seems like a great opportunity. You grow the oracle culture around r d. However, the sales team is legendary. We change them a lot cory. We used to go to market particularly in the application space, we would show a suite of applications. Today, we call them functional buyers. We call in the head of marketing, we call in the cfo. That the oracle salesforce has gone through a lot of transitioning. I am very proud of them over the next the last several years. We organize them by buyer, byproduct, and sometimes by competitor. Those are the three keys. We have changed them a fair amount. They had to lou had to learn a whole new set of capabilities. Cory it speaks a lot about the vertical expertise, the different sale sets skill set that are required to close out a deal. Mark the head of hr is not quite so concerned about the middleware. They are concerned about the functional capabilities of the application. Hasuse of the cloud, it democratized some of the decision processes for our customers. You really have to go talk to that functional buyer, and stay in step with the cio. Are your employees so focused on the verticals that they do not sell as much . Mark they are expert at what they do. They are expert at that functional expertise. Its not that they sell less, but when they do sell to that functional buyer they know that functional buyers job without actually giving them the job. ,ory as far as motivating them what are your chief jobs . Mark they are motivated by the great products. There are motivated by the great products to sell. They are being motivated by being a properly. They are being motivated by how their management directs them. The way i can best motivate them is make it easier for them to sell. To give them tools and support. To make sales calls with them. That is really the best thing i can do to help them. Cory that is it for bloomberg best. You can get all kinds of breaking news on the world of business at bloomberg. Com. Thank you for watching