Analysts. This is bloomberg. Bloomberg technology is next. Caroline this is bloomberg technology. Coming up, the gamble on software returns up mixed results. Break down the earnings for the Second Quarter. And we preview the opposite could finally end its long dance with verizon. And the cyber threat from russia is linked to russian intelligence and we speak with an is a director general chief alexander. First to our lead. Cisco shares popping in afterhours trading. Secondquarter revenue was over 11. 5 billion, just beating estimates. The forecast may fall short of those projections. Toco has been struggling jump start sales growth, ships to softwarebased services. Joining us to dig into those numbers is cory johnson. We are seeing the function, if you are looking at it come a shares fell in afterhours trading, popping slightly higher. It seemed to be in line. Cory Second Quarter often tougher cisco. This is another slow turn that is cisco as they moved through security, more towards software. You see the turn of their business. When it comes to burning surprises, you know that is a phrase that gets the hackles of my era. If you go to my bloomberg terminal you can get this great this is the sixth column, it shows the percentage of surprise. Through 2016,ck 2015, 2014, all green. S far back as we can see cisco has beaten its earningspershare estimates when it comes to adjusted earnings. The fact that the Company Beats by a penny is so meaningless with this company because they manage expectations and guidance. You have to look under the covers to see what is going on. You will see that Fourth Quarter is declining on stagnant sales. Where are they struggling . E. M. Sales. It shows you this turn. Sales numbers, you can look at billions of dollars. What we see when it comes to the percentage changes, you can see the turn. Despite billions of dollars in acquisition, you see a decline in sales that we have it seen in an norm us distress. One of the reasons you are saying that, it is a slow down in the Service Providers who are big customers, just not spending as much. Tothey have been struggling get into the Software Side of things. You need towhere make acquisitions if youre going to be pushing forward. Quite the right one. They have done better than their competitors. Or god for bid hewlettpackard. All of these companies, go back to their old competitors. Nowhere near as successful. Ofwere on a different world technology. Every company doesnt have to build their own service in the back room. They dont have to have the computing infrastructure. Ibm was the great stuff of and dell. In a worldesses, bige google is starting to a big business providing computer power in the cloud, which would have hurt them more have a not been better prepared for this. I think that is why you dont see them freaking out on these results. Reason acquisition of at dynamics. Pleased to provide customers with deep analytics across the data center, the network and applications. Accessrs are seeing through intelligent networks. Talk to us about the third quarter. We still think shares are up two percentage points. When do we see the real dividend stops payout . Dividends increase for this company. Stewardship,s the pretty good. The is you a lot of stock options. There is also throwing more and more free cash flow. They can afford to do that. This is a slow turn. ,f you look at this number sales per employee, you have this big sales stuff. Things are consistently good for cisco. Those numbers have generally been better over the course of the next few years. That is an important metric. They have an army of sales providers. They get in close with their customers. Management responds. Of leadersdown a lot helping them respond to customers more quickly. It seems i it has been a smooth transition. Liking that graphic there. Much, coryery johnson breaking everything down for us. A story we are watching now, bloomberg worst forced report on uberse known option to employees. A program that let those who work for the company for years so back as much as 10 of their uber shares. At well below 10 billion for employees. It is meant to give employees an incentive to stay since the company has no initial Public Offerings inside. Coming up, verizon is close to a renegotiated deal. The surprise is just how little that discount is. We will break down the deal next. This is bloomberg. Revamped Market Strategies helping groupon shares fall after the Company Posted sales that eat analyst estimates. The jumped more than 40 , biggest gain since july 2016. Now verizon is getting close to a renegotiated deal. The new deal would reduce the price of the original 4. 8 billion deal. Verizon had balked at the first price. Are expectedanies to share ongoing legal responsibilities related to the hacks. Now, alec sherman who helped break this story. Talked to us about this discount. Isnt that much . It is not that much. I think yahoo shareholders are going to walk away from this fairly happy because there was a risk that verizon may walk away from the entire deal altogether. ,he game that has been going on who has more to lose . I think yahoo has more to lose. They would have been in a difficult position and they would have to rerun that sales option. They probably would not have gotten the high of a price. I think yahoo has to walk away from this thing. Ofare happy with a discount 250 million. That could go up a little bit. To the ceo of aol last week. The desire was really there to get their hands on yahoo and its consumers. Im hopeful the deal closes. We have a high appreciation for yahoo overall. That is how simple it is. The valley change has been negotiated now. What about the next step for both . You have the reason about why verizon was able to accept such a low discount. Part of why they want yahoo is so they can move on to whatever else is next for verizon. We have reported there was a conversation between verizons ceo and libertarian liberty a massive deal for charter communications. We dont know if that is going to happen but verizon was looking at 1012 acquisitions of size after a yahoo . It allows them to move over. You have to think there is a high likelihood that could be a bigger deal than yahoo . Yahoo s Internet Business is only a small fraction of the Larger Companies you mentioned. Yahoo japan and alibaba. They were willing to accept the discounted price. Not only to get a buyer for their property but so that they couldnt monetize yahoo japan. Which is the crux. It is some ongoing buy this stuff from them . Are they going to trade for a while . All of those are outstanding questions. I want to make the most of you while you are on this show. Deals there. G apple has this enormous cash pile. Hundreds of millions of dollars. That apples signaled may be finally willing to do some bigger deals. Theyve never really done deals in the 40 plus year history of the company. Theyve grown products. We have not seen it. My colleague and i dug deep and that print by havent they done this . They are just not structured to do big deals as a company. They dont have a big m a team. They dont like working with investment bankers. The mechanics of being able to do a deal is not easily there for them. They have scratch their heads and said you want us to do bigger deals. Why havent we seen it . Their corporate coulter isnt structured to do this unlike at t which we have seen by directv. I have spent hundreds of billions of dollars on acquisitions. Caroline maybe the infrastructure is not there. Many have spent hours hypothesizing what they could buy. Who actually would apple be looking to buy . Great question. The three main targets are tesla, netflix, and disney. That is who they suspect apple will buy. Youre going to pay a company that keeps paying more and more money for content. Netflix has capped its stock price high by adding customers. There is a synergy there. Netflix is a subscription business. That is how apple monetizes. Through itunes that is. To be aney, there used strong connection with steve jobs, who was on the board. There are a lot of synergies between disneys content and apple. That would mean apple is getting into the themepark business. Even the cable tv business. If they did by disney you would have to wonder are their divestments they want to make . Or do they want to take on that enormous company . On top of all of your hard work, thank you for spending some time with us. Wall street meets Silicon Valley at the Goldman Sachs technology conference. Highlights from our excuse exclusive interview next. Interactive tv function. You can find it at tv on the bloomberg. You can watch us go and see dive into the things we talk about. Mrs. For bloomberg subscribers only. Caroline now to a stock we are watching. Shares are says love near record highs shares of tesla near record highs. Only a handful of analysts have begun to include the deal in their forecasts. Others are waiting on more information. As we mentioned earlier deals like cisco and at dynamics, they are assuring in an aggressive era of tech m a. Spoke about the rising number of tech deals and ipo activity in the space at Goldman Sachs technology conference. There is certain lots of capital available for companies that are growing pretech companies growing, a lot of that capital is available privately. Last year was an historically low year include in terms of ipo activity. Things add been flow but gravitate back to the mean. , but wheneful an you look at the world these Companies Operate in, if they are able to grow and Access Capital privately and there arent other pressures from shareholders, these companies are putting off the opportunity to come for the Public Markets longer. The capital for growth is available privately. I would expect to see more companies coming back to the Public Markets then we saw last year but that process is going to be a methodical process. We saw plenty of consolidation on the cash balances. We might see yet more cash if we see money come from back from abroad. In the techity space is pretty active. We have been involved in 14 m a transactions since the first of the year. That is more than we have seen since the year 2000 to see that. Ctivity there are a number of reasons why that is occurring. One of the things that is happening, you have a number of Large Companies that are growing very quickly. Thebook grew over 50 on 28 billion revenue base. Those companies are growing. They are generating cash, generating market cap. They are taking away revenues in some way. Theses what some of businesses are in a place where they have to think of Strategic Options more carefully. We are going to continue to see consolidation. Activities will continue to be high this year if the environment stays the way that it is now. It could be a relatively good m a year. Caroline lets talk about disruption. Lets talk about how Goldman Sachs is evolving. Lloyd blank find said back in 2015, Goldman Sachs is a technology company. More engineers and bankers at the moment . We clearly are using technology in our business much more than we would have 10, 15 years ago. The wayo back 15 years, people traded equities was voice to voice, persontoperson. Now it is through a vast system of connectivity. Shift in thesive staff that you need, the assistance you need. That is going on in most aspects of the business. We hire all different kinds of people. We have a diverse workforce. We need different kinds of talent. We have increased the stem graduates we are hiring because there is more engineering work. As we look to make Technology Investments that can serve more clients we need those kinds of people. I would not say more versus finance majors are others that come from a business background. As you and i discussed before we came on, the quality of our people to attract great people fund hasentiate the changed our business. Caroline does your culture have to change to attract these people in . Do they want more Flexible Working . I dont think it is fundamentally different. Young people coming into the workforce want to work for a Great Organization with terrific people that serve clients, gives an opportunity to learn, grow and accept. We have always been focused on creating the best Work Environment for a longterm growth, positive experience, economical employees. We believe we do that. It is a positive cycle. Caroline you have got into digital lending. Go there . T that is a new business for us, a new platform. We are in an interesting position. And ourr Balance Sheet funding, without the commercial banking competitors, and a position where we can build a. Ailored Technology Product we have a targeted universe we are going after. We are excited about the growth opportunity. So far it is off to a good start. We are excited. Conversation with David Solomon at the companys tech conference. General Keith Alexander joins us to join us joins us to discuss more. That is next on bloomberg. [ alarm clock beeping ] weather. [ laughter ] cartoons. Wait for it. [ cat screech ] [ laughter ] [ screaming ] [ laughter ] make everyday awesome with the power of xfinity x1. Hi grandma and the fastest internet. [ girl screaming ] [ laughter ] you you are watching bloomberg technology. Lets start with a check of your first word news. There was an ultimatum from james mattis who told allies a nato meeting if they dont increase defense spending the u. S. May alter its relationship with them. To spendtries pledged 2 of their gdp on defense. Many have not lived up to that commitment. No says indigenous groups maddest give consent to Economic Impacts their ancestral lands. The Trump Administration to complete work on the Dakota Access pipeline. The Standing Rock sioux tribe have sued to stop construction. The vietnamese woman has been arrested in the death of the halfbrother of kim jonguns halfbrother. Temporarilyis pausing eight operations in neighborhoods as attacks by the Islamic StateGroup Continued to inflict heavy civilian casualties. It fully liberated but some continue to be hit by insurgent attacks. Global news 20 for hours day powered by 2600 journalists and ints and 120 countries 120 countries. 630 6 30 in hong kong. Im joined by Stephen Engle with a look at the markets. Good morning. Yesterday i saw sharp rises in a number of asian markets but this morning we are seeing a mixed open to the asian trade. New zealand shares are down. Index closed at a 20 month high. Reboundede dollar has first of the u. S. Dollar. Japans bluechip index rose more than 1 yesterday. Reachedkong the index the 24,000 point level wednesday for the first time in four months. Great shares rose out of the mainland. Samsung heir apparent will be in court as prosecutors widen their case to five allegations including bribery and embezzlement. Afinal decision ahead of potential trial is expected friday morning. Rate isine unemployment forecast to hold at 5. 8 . The jobless rate moved higher. Im Stephen Engle in hong kong. More from bloomberg technology, next. This is bloomberg technology. Our top story, cisco shares still up in afterhours trading. The company reporting secondquarter revenue was over 11. 5 billion, just eating estimates. It may fall short of analyst projections. Working to jumpstart sales growth, since the Network Industry shifts to softwarebased services. Are investigating the extent of contact between donalds advisors and russian intelligence before the election. Michael flynn step down this week. Developers are the latest example of National Concern about russias capabilities and the insulins on the National Security of the u. S. Knowledge,h expert Keith Alexander. The rsaelm, in town for conference. Welcome to bloomberg technology. 50 the here. You are you have plenty of clients looking at what they can provide you. I want to ask about the executive order that many are anticipating. What do you want to see on this executive order . I doubt want to get out in front of the president. What he gave to the press about addressing government, aggressively getting there i. T. Infrastructure ready, getting government to Work Together and addressing the key problems, those were in the right venue and what our nation needs to get started on this. The key thing you see in his approach is he is delivering on a campaign promise, that we will take cybersecurity seriously and address this problem, and we need government and industry to Work Together. Iron net does look to the government as potential clients. You were were you privy o conversations as they work towards this . They do. They reached out. They give people more than just me, people that can really read. They give them a chance to look at this and give advice. That was one of the great privileges, to sit in their as one of the to sit in there is one of the advisors, i thought that was a great way to build on it. You can see they are taking that input and continue to refine that executive order in a thoughtful way. Caroline some of the other people you look to, giuliani, does he have the relevant expertise . The management and leadership insights. Anddo you bring industry government together . What is he bring to the table, he can be one of the people that helps bring industry and government together. That is as important as technical folks like myself and others to talk about the problem. Andets talk about russia all of this comes on the back of revelations roster was behind wasr attacks russia behind Cyber Attacks in the runup to the election. How concerned are you . I take a slightly different and probably unique view. When a new president comes and office, one of the things we ought to do is say is there a way we can work with other nations . How do we do that . What is the right relationship United States should have with russia, with china, with others. Can we help the world . Step one, research that. Can we come up with a relationship . Set thise limits and according to what his administration is going to do. One of the things i take comfort in, some of the people he has brought into the cabinet, the secretary of state, this is a great individual. And secretary defense. A personal friend. Tremendous capabilities. Together,ose people he is putting together people who will give him candid advice. What he is seeking. Candid advice. It was amazing to see him go around the table, talk to people, get their insight, listen. I thought, that is the president our nation needs to see. He is listening. He is getting this right. He is going to address problems that we need addressed. That is a good thing. The first step is, we dont want to step out with a lets go to a conflict. Is there a better way to do this . First. Ld research that caroline is the research to close . Down. Rson stepped can you talk to us about whether that is a weakness at the moment . Is that a worry . Fill michaelo can flynns shoes . Caroline they selected somebody they selected somebody already. I think that is out there. Im not breaking it now. I know bob. He worked closely with general mattis. He was at centcom at the same time. He will do a great job. You have other great people in this. You have k2 mcfarlane. Then on the Homeland Security you have tom bossert. He has great people there. The good part is, he is reaching out getting good talent. Could we see the relationship with trump and some bethe u. S. Secret services impossibly damaged . Do you think there is any vitriol coming back . Isil none of that. In the room that i was an you could say the same thing for the director of the nsa. I saw it not at all. Completely professional. I think the president is looking at these things. At the end of the day, when i saw him reaching out to that with mike rogers, i dont see that happening. Caroline can you give us a global perspective of where they are in need of great cybersecurity, preventative measures, getting potential calls. Is the u. S. A key concern . Because. S. Is in part we are a country, when you look at how do you tack the United States, terrorism. Cybersecurity. Those of the two vectors. We have done a good job blocking terrorism. We need to keep that out. That is a key for our future. A lot of work. Our cyber defenses are not there. Fixed government. We do have the government industry partnership. We would see after the fact and government, that is not where we need to be. It needs to be defensive. We need the ability to defend the nation at network speed. If somebody tries to her desk, we can stop it. Before the attack cripples us. Those are the things i see the biggest needs. Things we have to move forward on. About the greatest concern i have. , theseat that and think are issues. We dont need a pearl harbor. The part that i found comforting was trump listen to those people. We are going to make a steps. I dont know they will get it all done this week but i think they will address that. I think you will see movement on it. We have to get industry and government to Work Together. It starts with the first step. Caroline where is the number one threat coming from . It depends on what is going on. Several countries. What im concerned about is if we have more issues with iran, what goes on with iran once iran is done with saudi arabia. Does that come back to haunt us as it did in 2012 when they against our banks . , does thatok at that come back to haunt us here in 2017 . Other countries could wish us harm depending on how our diplomatic relations go. You think about it, cybersecurity, Cyber Attacks are being used as an element of national power. Those countries that cannot wield the physical attack can wield a cyber and hope to get away from it. We have to be prepared for that. Scarlet it has been great having caroline it has been great having your perspective on that. Theng up, we dive into Vacation Rental space. How he things president trumps stance on immigration will impact the sector. If you have a bloomberg terminal check out tv. You can interact with us directly. This is bloomberg. Caroline competition and the Vacation Rental market is ramping up at a fierce pace. A major contender is homeaway. They announced they surpass 2 million unique offerings. Thanks to further integration with expedia, which acquired the company in 2015. It is on the hunt for new acquisitions and partnerships to ramp up its had a great. Austin, is live from texas. New offerings, give us how you are beefing up a potential to compete with airbnb that seems to be getting into the Vacation Rental space that much more. Is that a worry . When we start to think about this industry, one of the things going in our favor, we look at the recent years. It is really growing 3040 year over year. When you look at the overall marketplace it is rife with opportunity right with opportunity. Where i think we are strong is our roots, we grew up with having inventory that was associated with being private and home oriented. Beach houses, mountain cabins. We think that these are properties that consumers are going to love. Im not focused on the competition as much as i am focused on taking advantage of the opportunity in front of us. A growing Awareness Among the travel market, making sure we have properties that fulfill their needs. Caroline how are you going to get those new properties coming to you . If they are looking for their own . To think about it, as long as you have command in a particular market, it is not about acquiring the most, the question is do you have this election for the target audience you are targeting . We specialize in focus on families. Our properties, when we look at the value proposition, we want to give them a kitchen. We want to make that experience easier for them to book. This is where we really do shine. We are doubling down and making sure this gets easier. Lets talk about the ease of booking. , how we you sure all of them are . Can all of them become the 2 million that you have . I dont think all of them are bookable. E instantly we have a number of properties, if they have 22 bedrooms, there may be a q a backandforth they need to have before a booking is made. There may be some questions that the owner has for the traveler and questions that the traveler has for the owner. As you get to more Luxury Properties there is to be more communication. Thosethe right answer for cases . How about the company expedia , we might see yet more competition. Some other players becoming more fully fledged travel Companies Looking to get into flights and businesses. [inaudible]ng the travel industry has always been competitive. The thing that keeps you competitive, the things you invest in that make you great his relentless focus on the user. Theres a million things in travel you have to get right. This is not a game were you say i have a big idea. It takes use time and investment. Expedia, we are Getting Better at that every single day. That is the thing that we bet on. Talk to me about the regulatory risk. You have a president who was himself a hotel he or hotelier. Is this something you have considered . One of the things we try to stay focused on, you can do a of speculative speculation in terms of what is going to happen next. And what peoples incentives are. I have not heard anything in regards to being proposed that would be coming from the offices of the president. Until that happens we dont want to speculate because you can waste a lot of energy. We will let you conserve your energy for the time being. Thank you for joining us. Have great to have you on the show. Facebook is looking to boost its live sports streams. With the global head of sports, next. Caroline a story we are watching. Amazon and google turning their popular smart features into home phones. Amazons echo and the google home could be used to make or receive calls, diminishing the landline business. It could be a major disruption for Traditional Telecom firms and take attention away from smartphones. Facebook is looking to put its sport streaming portfolio adding live games. Scarlet fu sat down with the global head of sparks asking the currenting from level of sports broadcasting. Like sports is inherently social. When you are in the stadium, the interactive environment is a must as important as what is happening on the field. We think combining sports content, where you have all of have thatds, you can same interaction on a global or digital scale. Whether it is a game on the platform order headlight highlights, or conversation happening, those conversations are happening on facebook every day. Is already the Worlds Largest stadium per se. We think there is an opportunity to bring that and are active to what you think of with consuming sports. Be one way because most of it has been consumed on television. Talk about the integration number to reality and what you are doing. It is very early days in Virtual Reality. Something everybody gets excited about. We think there is great potential. The promise of vr, you can be watching a game in Virtual Reality as if you are there, and can be all of your friends the matter where they are located. My father lives in detroit, we can be watching a game together. We think that is the holy grail. There is a number of stuff steps that need to happen. Think it is not just a different experience, its unique way to connect with people. Caroline facebooks global head of sports, speaking with scarlet fu. That does it for this edition of bloomberg technology. A quick programming note. With the will speak stanley fischer. York, 11 38t in new in london. This is bloomberg. Our studios in new york city, this is charlie rose p are cap charlie rose. Al welcome to the program. Im al hunt filling in for charlie rose. We begin with a conversation about michael t flynn. He had served on the job for 25 days. Agents interviewed him in the first days about a conversation he held in december with the Russian Ambassador regarding sanctions levied against russia by the obama administration. Soon after the interview, acting attorney general sally yates told the white house she believed flynn had