Transcripts For BLOOMBERG Bloomberg Best 20160207

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 alphabet. Surging in after hours trading. 9 4 . Much as surpassing apple. It this is the first time the company has reported earnings under a new structure just four months ago separating googles main search and advertising. Cory just by calling it that, it is a way to lower expectations. The other thing they did to 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 me were mobile. That used to be the albatross. They are focusing on the things that make them great. This is a technology company. What we saw even though we saw improving 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 bets, which i dont think is that farfetched when you think about health care. I think it makes for a compelling story, more so than what we saw yesterday. Yahoo slashing 50 of its workforce and explore Strategic Alternatives for its core 15 of its workforce and explore Strategic Alternatives for its core business. Is that the company putting the for sale sign on the door . Quarterly earnings coming in . 13 a share. Search revenue up 12 . Winding down legacy products, closing offices and looking at selling part of the company. How do you translate what they are saying here about Strategic Alternatives . Are they really exploring a sale of the company . In her presentation, talked about selling nonstrategic assets. At some point, she did say that the board was going to be responsible to explore the sale. The Strategic Alternatives the sale of the company. It depends what we see between now and april. If nothing goes forward with a sale 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. Te company in china offers 43b for syngenta. I was running through the numbers again. What does this tell me . Chinese is serious about having access to technology. The share price did not go up. There are regulatory concerns. We have been spending a lot of time asking ourselves why why are they trading so low . It is the biggest chinese outbound acquisition. We have to wait and see if they can pull it off. Stateownedt is a company and would pose security risks . Yes, that is a way to look at it. It has facilities in the u. S. And has to be approved by the government. The Agricultural Sector has implications. It is being 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. For one, we have all my all the members of the bank of england voting to keep rates at a record low. 5 . Betty are the walls closing in for a rate hike in 2016 . John, does it sound like we pushed it off a couple of year . 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 think there is more of a chance of a rate cut in december, 29 , then a rate hike. 151,000 adds, you are all wrong. We are still above the threemonth replacement rate, im sorry, moving average. Thats 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 . I thought the Unemployment Rate 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 wage growth. 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. Why are we 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 uses that rate and models the tailored model to forecast policy, but the are focusing on the wrong thing. They are focusing on the wrong thing. A lot more tech talk later on bloomberg best. Cory johnson has an exclusive interview with oracles ceo mark hurd. We look back at another wild week for oil. Scarlet welcome back to bloomberg best. Im scarlet fu. A steep 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 if oil prices prices remain where they are now a year from now . I dont think they will for starters. We run scenarios. We think deflation will come through. We are a complicated company. One of the changes we are making 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. At 60, 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 have 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 60 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 labor, that is when you ought to be spending. Even exxon is cutting back. How concerned are you about Balance Sheet . What can a company do when it generates cash . Not so good for creditors. It can invest in the future. That is not good for credit ratings. That is one of the reasons we have seen downgrades. When you look at low prices, 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. Is it a year, five years . We dont know. Morgan stanley is out for a new oil with a new oil forecast. 29 a barrel by the 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. You are going to be 50, 60 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, have come down from 1609 down to under 500 rigs. You are going to see a decline in production fast. Watch out for a recession. Moving beyond the hot topic of oil, lets take a look at more company news from around the world this week. Give us your outlook you are sticking to your overall level of guidance. Fuel 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 Quarter of the year, we are 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 we wont be found lacking when it comes to rewarding our shareholders. Looks like 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. The 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. . We expect to have a good 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 model to rival ubs shrinking the trading unit and increasing wealth management. He spoke to francine lacqua. We have cut bonuses, so it is a tough cocktail. How much for bonuses . More than 30 . This stabilizes by midyear, 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 to the statebacked fund and may need another month to make a decision. This would end up being a huge acquisition. Sharpe, they have five or six businesses. I cannot imagine anyone wanting to own any of those, and 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 three years. We see that the president indicated he doesnt want to break up the company. It is not in his hands. He is one of four president s who have come to sharp. But the real deal is basically there are pieces within sharp that may be valuable, not to sharp per se, but two other entities and other companies. Scarlet you are watching bloomberg best. Im scarlet fu. Among the alist guests, one of the best basketball players, nba m. V. P. Stephen curry. Tom keene went oneonone with stanley fisher. Take us inside the debate at the fed of the how. How do you determine in 2016 the when of those rate increases . We dont meet to discuss how many will do in the coming year. There is some discussion, the language in the announcements is we believe it will be gradual, etc. , etc. It is not 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 paraphanelia 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. How do 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 league 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 are ball fans around the world. Do you like the yeartoyear contract . Do you like to know it you are where you are going to be for a long period of time . You have to assess the situation. Lebron is doing that for a reason because he wants that flexibility to get his market 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. Be the same cam that has got me to the super bowl, but enjoy the moment. Another newsmaker joining us this week was yahoo ceo Marissa Mayer. Hours after the Company 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 important 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. We believe that dovetails with our Strategic Plan recognizing the most value. Emily lets talk about those Strategic Alternatives. You are pursuing three different plans at the same time. How far along are discussions about selling the core business . Marissa we view all three as being very complimentary. In the core business we are focused on being the best version of yahoo we can be. For users, shareholders, advertisers and really recognizing the value of the assets we have built here. In terms of the different transactional pieces, 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 there must be debate among Board Members about the future of yahoo . Charles schwab just left the board. Do you feel that there are current Board Members who dont share your vision . Marissa overall, on the board, management and the board are very aligned. And, i will say, yahoo s 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 complicated pass forward. We need to address how we see the most value we can from the operating business. And see the most value we have from the alibaba stake. Emily you said 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. Bloomberg best continues with a silicone valley exclusive. Im scarlet fu. Much more to come on bloomberg best. Change is underway at oracle. The Worlds Largest Software Company is shifting to the cloud, and leading the charge is mark hurd. He has a long history of success. Exit, in tumultuous 2010 he was scooped up by larry ellison. He talks about his ambitions for the cloud business. The prospect of growing competition. I would rather have oracle our hand, then any other hand in the industry. And his approach to handling one of the worlds biggest companies. I want to do the best i can. And make it easy for them to sell. Corey cory i am cory johnson. This is bloomberg best. We have seen 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. But now we have this move to the cloud. There was a time when there were a ton of 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 . Mark it is a big shift, over 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. For us, 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. Why is it for newer companies 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. The bulk is moving to the cloud, but for a time, youre going to have to work together. And architectures 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. Cory theyre also saying it will be so much cheaper. Because they are charging by the feature by the day or by the hour or whatever. You guys have different kinds of pricing strategies. Software in the Cloud Software had you make that work in terms of what Cheaper Software looks like . Mark i do not know if i would call it cheaper. I would call it more variable. The ability to shut something off when you dont need 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 premise world. Both Business Models are extremely attractive for us. We have invested in driving our cloud stock, and that is what we are focused on. We are about as agnostic as you can imagine. We as a company are invested in driving our cloud stock, and that is what we are focused on. Cory your competitors like to talk about what you guys arent 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. So, to be very frank, i think they have acquired some properties that function separately from s. A. P. Cory you mean things like concur . Or other things . Mark concur and arriba. Success factors is a property 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 that software for the cloud. In the short term, you can certainly continue to sell licenses. That can work for a time. But longrun customers want to move. Idea,o give you a quick we have sold i would guess by the end of the year, at the end of may, it will probably be in between 2000 and 2500 solutions \sas solutions in the cloud. I think s. A. P. Sold none. Cory do you have enough tools . What are they going to do next . Do you look at acquisitions as the right way to grow . Mark 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. We tend to have a strategy, and then buy and build to that strategy. We have done both. Again, it has to make strategic sense to us. A dairy queen would make about 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 competitor . Mark i know that you know that i am not going to comment much about that. Cory i guess i am asking he 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 sas 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 period 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 cheap. 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 feel like it is the time to sit back and wait for valuations to be ready . Keep some powder dry in case something goes on sale . Mark it is always an advantage when that happens. It is always an advantage when things cost less, that if you look back at our history, that is not necessarily driven every decision we have made. We made a decision based on the right thing to do at the right time. What fits best with our strategy. At the end 2010, 2011, we did a couple of acquisitions. Delay held a couple of others. Taleo and a couple of others. They were so important to us. Our fusion product line was just coming to market. Cory, we learned so much about the sas market. At the same time, we took a leadership position in some key segments. Cory what do you feel you have learned from this sun acquisition . Surely you did not expect the numbers to be as hard as they have done. 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, which predates me, it was a fabulous acquisition. It is an acquisition that 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 . Other . M and software, mark great question. I would rather have our hand than any other hand in the industry. For the reason, that it is hard 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. I mean look at the investments , we have made in the past several years. We have upped our r d. 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. But, we have had to invest to transition. Because by the way, if we keep that on premise capability 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 gotomarket organization. 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. There are a lot of companies it is hard to get from here to there. Cory oracle ceo mark hurd has over 2000 Customer Interactions every year. One of those ceos telling mark heard that they are worrying about. That is next on bloomberg best. Cory welcome back to bloomberg best. His job is making sure oracle products get sold. He talks with so many ceos of so many companies. What are they worried about . Check this out. Explain to me what it is that you do when Companies Pull back . Mark when you see a down market, your first instinct is to cut your resource. So cut thel be down expenses down. My whole point, for a while the reality is that what happens in downturns is that people do not stop looking. Projects do not stop. 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. So what happens is, when things hit an upturn, the projects that have been gestating tend to come to fruition. What happens is that if you cut the resource in the middle of that, you do not get the opportunity. Cory so they are knocking on doors, and your company is not the one being thought of for the new project . Mark exactly. Up, youime you ramped have missed it. We have been doing it in europe, we are doing in latin america right now. Brazil right now, their gdp is at 4 or so. This year, are we cutting our resources in brazil . No. We are going to invest in brazil. Brazil is going to be a strong market for years and years to come. And at europe, back in 2010 2011 and today europe is continuing to solidify. Our business in europe, we continue 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 let me go back to sap. Bought a bench mark let me go back to sap. They bought a bunch of peripheral companies. We believe the core agenda is to build out a suite of capabilities. Customer experience, marketing, etc. , those capabilities are at the core. If you think Procurement 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. If you think Procurement Networks and expenses are the core values, then they are doing great. We would not mind if they just wanted to give us their erp. The two most important segments of the Software Industry over the last two years have been 20 years have been database and erp. So, we are very happy if they do not want to overwrite their core erp base and they just want to let us have that. Then, they can go do more of what they are doing. Cory you spent a lot of time meeting customers. I wonder what that is like a ceo. What the role of that is like for a ceo. Mark one of the most important things you can do when talking to a customer is to listen. They have problems. Most of our customers are operating against a backdrop of what you are reporting on every day. I mean, the s p 500 was 2008, the Revenue Growth across that group has been zero order or slightly less than 1 . Five or 6 over that time frame. By the way, that was over six or seven years. Which means most of our , customers have problems on the top line. Most ceos last in their seats around four and a half years or so. So they have a relatively finite window to execute a plan will stop 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 many customers do you talk to every year . Mark a lot. By the way, it is not only thing have to do as part of the job, it is a fun 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 some overwhelming issues i 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 grow cash flow. I have to please the investors. It is always a challenge. This has always been the case for ceos. Now, you have more activism. Then we have had before, so there is a bit of a sharper edge 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 more people looking over your shoulder. At the same time, you have a change in dynamics. The Employee Base is changing. Millennials will be 50 percent of the workforce by 2020. Those people who are working for you are actually going to be customers, too. They buy differently. They work differently. Cory how do they work differently . Mark if you look at them as a group, and by the way, we are a huge hirer 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. Remember, they have grown up in an environment 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 quicker than i would have. 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. Once to get mad, when they went to me and where they want to meet me. Customer service at its core is what it is all about. Cory up next on bloomberg best, 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 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 lead the industry. Building out our infrastructure, our thought form, our sas. It has been a lot of work for the r d team. They have done a fantastic job. Frankly, 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 left me energized about oracle. To be very open with you, 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. I mean, i feel like for all the culture oracle has around, the sales team is legendary. Mark we change them a lot, cory. In fairness, 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 on the head of hr, we call on the head of marketing, we call in the cfo. The oracles that the oracle salesforce has gone through a lot of transitioning. I am very proud of them over the past several years. They are organized now by buyer, by product, and sometimes by competitor. Those are the three keys. We have changed them a fair amount. They had to learn a whole new set of capabilities as we move to the cloud. Cory it speaks a lot about the vertical expertise, the different skill sets that are required to close out a deal. Mark the head of hr is not quite so concerned about the server or the operating system or the database or the middleware. Are they arey concerned about the functional capabilities of the application. Because of the cloud, it has democratized some of the decision processes for our customers. We really have to go talk to that functional buyer, and stay in step with the cio. Cory 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 about as well as you can expect without actually giving them the job. Cory as far as motivating them, what are your chief jobs . Mark they are motivated by the great products. And i think we have great for next to sell. They are motivated by being paid properly when they execute and sell. And they are motivated by how their management direct them and help some. The way i can best motivate them is make it easy 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. Here in redwood shores, california, on oracle headquarters. You can get all kinds of breaking news on the world of business at bloomberg. Com. Thank you for watching. Narrator our world today is wealthier than ever. But not everyone shares in this wealth. Todays young Business Leaders are challenging this. Changing the way we think about money its power and its purpose. This is a new generation. This is the new philanthropy. Beatrice truar