The burn of sanctions. We have an interview with the chairman who says the company has a plan b. L. The cost of being coo an executive testifies they fired workers in an effort to compete with Companies Like google and amazon. The latest on multiple age discrimination lawsuits facing big blue. Apple forecasted revenue the top analyst estimates about seeing a surge in services which contributes to a fit of total sales. They also reported the iphone revenue, the5 of first time it has made up half of sales. In a way, this is progress towards apple less on the flagship product and more on a new lines of business. Andt more from max chafkin a portfolio manager. It was interesting, if you would have told me they would have missed on those services and revenue, i would have said there was no way they would beat on top and bottom line. Wearables was a big plus. They also used about 21 billion of cash on the quarter to repurchase shares and increase the dividend. I think they kept it at . 77. They did some other things to kind of help along which initially you would have thought would have been a tough quarter for them, at least based on how they missed estimates on revenue iphone revenues and also services. Emily still, we have got the president warning that the trade war may not get that are anytime get better anytime soon. That could impact the iphone. If tariffs come into play on the iphone, what do they do . The reality is, for years, apple has been counting on global expansion, selling lots of iphones in china. They have been able to do that to some extent, but the numbers just arent there and the outlook is not great because you have, as you said, the possibility of tariffs, further barriers. Also, these Chinese Companies are going to be pushing harder in the domestic market in china. At the same time apple is trying to get in there, there is potentially the government helping those companies along, so lots of quote unquote headwinds for apple. The good news is, the services thing, even though it is not exactly where they would like it, it is pretty strong. It is amazing. This has basically been an iphone company for years and is now below apples revenue. Half of apples revenue. It is probably a good sign because we have heard tim cook say over and over again that they want to increase services revenue, and here it is happening. Emily tim cook is speaking right now, saying he is thrilled to see a return to growth. You own a couple thousand shares of apple, how concerned are you about this tariff issue . The tariff issues as max was saying, it is kind of a double when he in regards to shipping phones with the company ministration. Then you have with the Trump Administration. Glassou have things like covers, sensors that are shipped into china that could be potentially on a tariff watch with the Chinese Government. The big question Going Forward is just what does apple do . Do they try to raise prices, which they already have extremely high average selling prices compared to the competition, or do they just absorb the tariffs into the profit margins, and how does that work into the International Expansion . You have annual average incomes in india and china that are a fraction of what they are in the u. S. It does create a conundrum Going Forward. It is an issue in terms of trying to model out what will happen with these tariffs. Emily meantime, they wants to push the services business. They still hit a record, lighter than some estimates, but in grow, they have to keep getting devices in the hands of consumers. It is kind of a circular thing where, on one hand, services are replacing iphone other, youon the cant have Services Without iphones. Are they making this revenue because services are really good or because they have set up this business where you kind of have no choice . If you have an iphone and want to buy an app, that is recurring revenue that is never going to go away, or not for a long time. In terms of revenue growth, is this real innovation or is this a powerful, Mature Company flexing its muscle and collecting revenue . Depending on what you think the answer to that question is, its how you value the stock. If you see lots of growth ahead, you will be much more optimistic. Andy that was max chafkin dan morgan. Apples biggest rival also reported earnings this week. Afterg shares fell secondquarter profit more than halved from a year earlier. I got details from selina wang in hong kong. We already received a profit warning from samsung, so they actually Beat Estimates on some fronts. The big story has been an industrywide story, around these memory chips. They have suffered from low demand and falling prices because of the overhang from the uncertainty,onomic and slowing demand. But we did hear positive news on that front. Toy are expecting demand pick up in the second half of the year, a big sign was they expect these Data Center Players to reconsider purchasing again. We also did see declines in their mobile business. 42 decline in operating income. Of course, the whole industry has been dealing with problems, but samsung did say profitability was eroding because of intensifying competition in these low to midrange markets. Some samsungspecific issues, but theyve also been dealing with a lot of global geopolitical overhangs. Emily talk to us about how the u. S. China trade war and the dispute between japan and south korea are impacting samsung specifically. Selina one of the biggest overhangs is how long this u. S. China trade war will drag on for and how much it will globalslowdown on growth, which affects purchases of smartphones and components. The japansouth korea spat is also a huge concern for investors. There were a lot of questions from analysts on the call about how they would minimize the impact. We did not hear a lot of details from executives. We know they have enough components for now, despite the , but the problem is if these do drag on, if they become even broader, how will samsung find alternate suppliers . That is going to be very difficult and it could lead to production issues. On the huawei front, that is a doubleedged sword. On one hand, as huawei suffers from challenging demand abroad, that is a place for samsung to come in on the smartphone front, but in terms of their profitable chip business, that could be a big drag if quality is unable to purchase as many components. Emily meantime, samsung has also faced branding issues. They tried to launch a full double phone to much fanfare. They pulled it back, how are issues impacting demand for the samsung phones . Selina as you mentioned, they have had a slew of branding problems and have been seeing declining profits in their mobile division. They also made the decision that a statement that smartphone sales will be similar to april and june. It suggests the launches of these new phones may not be successful. But some of the bright spots in samsung earnings, one of them is the display. We saw apple come out with earnings recently that had strong results, stronger demand than it expected, so that is expected to be a bright spot in this display screen area. Another bright spot executives touted on the Earnings Call is the development of 5g and the growing demand for 5g chips. However, it is still early stages and theres a lot of skepticism among investors about how that will play out for the rest of the year. It is worth pointing out that another reason why there was such a negative share impact after their announcement is that they ended up delaying the announcements in shareholder return plans until next year, citing concerns to Global Growth and geopolitical uncertainty. Emily that was bloombergs selina wang. Coming up, the federal trade commission has left facebook with the largest fine in history. But will facebook learned its lesson . We talk about it with a dissenting ftc commissioner who says the fine is not enough. And if you like bloomberg news, check us out on the radio. This is bloomberg. Emily last week, the federal trade commission formally announced the details of its settlement with facebook four years of privacy violations. As part of the settlement, facebook must submit to oversight from an independent committee as well as new privacy certifications. While the fine was largest ever andsed, many lawmakers privacy groups are arguing the company got off too easy. I talked to an ftc commissioner who voted against the government. I voted against the settlement because i thought, when you look at the terms taken as a whole, not just the fine at the injunctive relief, i was not convinced it would do enough to change facebooks behavior and make sure they kept their promises. Emily what would have been better . Finding zuckerberg directly . Directly,zuckerberg perhaps personally . Realistically, you have to look at what the options were. It would have made a lot of sense to take facebook to court. To ay, you may not agree settlement we think will change your behavior, so we will pursue the terms we care about in court. And open litigation and a public court of law would provide transparency and accountability that i think is missing. I also think the settlement is missing meaningful limits on how facebook collects, uses, and shares data. Emily suing facebook directly what have been a riskier path, wouldnt it . You could have risked losing the suit. I agree. And if you think the entire point of litigation is the outcome at the end of the day and you think the remedy in the settlement was enough to change behavior, then i can understand supporting it. But if you do not think the remedy change their behavior, you can think of other advantages litigation could have in terms of public accountability and transparency. Day, wethe end of the the ftc are not a private corporation. We are not just making an expected value calculation. We are trying to work in the interest of the American Public and we have an obligation to seek justice, even if we are not guaranteed to achieve it. Emily i spoke to your colleague noah phillips, i told him about your response to the deal. He voted in favor of the deal. Take a listen to what he had to say about your suggestion. Noah i dont think that is an accurate characterization of the state of play. The remedies we have achieved, both financial and injunctive, meaning the changes we are making to facebook, are very unlikely to have been achieved through a court process. In normal litigation, you are waiting the certainty of less against the chance of more. Thehis case, were facing certainty of more and the uncertainty of getting even less. Emily what is your response to that, commissioner . Respectfully, i disagree. I dont think the terms on the table were enough to guarantee facebooks behavior would change or even to make it likely. Did not oppose any public accountability or meaningful limitations on how facebook uses data. I would rather take the chance in court and i think the process of public litigation can make a big difference. If our goal in bringing enforcement action is to turn the company from doing something wrong, and deterring others from doing something wrong, the prospect of a public trial can have a very effective deterrent effect even if the remedy may be different than what you could get in a settlement. Emily what about the zuckerberg personally . What sort of punishment or penalty would you have liked to seen like to see . What i am going for is accountability and transparency. The settlement the ftc entered into excused mr. Zuckerberg, and all other executives at facebook, from any liability. And i did not think the investigation we did justify that excuse. I did not think we have a basis to say no liabilities. At a minimum, i would have liked to see some transparency, some testimony, some documents in insightt gave us better and that gave us better insight. Concerned you facebook wont learn his lesson . Its lesson . Given that there are no structural changes, things will just go back to the way they were . Fundamentally, that is my concern. I think that is why it is important for the ftc to use the resources they have, limited as those may be, to fight to change the behavior of companies that are breaking the law and teach them the lesson that it is not worth doing again. In the meantime, the ftc has opened an antitrust investigation into facebook. About thatu tell us investigation, or at the very least, your position on whether facebook is too big . Tellfortunately, i cannot you anything about the substance of a particular investigation, this or any other. Ftc has an the obligation to look into questions of antitrust violations. Those are often going to be by big companies. And to open investigations where it is appropriate. Emily uft ftc commissioner Rebecca Kelly slaughter. Demand and ane downbeat forecast, we talk about the impact of trade tensions. This is bloomberg. Emily qualcomm gave a downbeat Sales Forecast yesterday. At the highend, they are looking at 5. 1 billion while analysts predict and 5. 7, that is in line with a warning issued in april that demand for smartphones, particularly in weak. Would be week i got a rundown with our editor in new york. That forecast was very light. The forecast for the quarter was also really liked. The adjusted eps of . 75. Down to qualcomms basic Business Model it has this model. S. Boils down to the basic it has a controversial practice of not just selling chips to manufacturers but licensing and they want royalties equal to a certain percentage of the value of the device. This has caused a lot of litigation problems for qualcomm. They actually settled with apple earlier this year. There are a lot of questions about similar case brought by the ftc. A judge in the ninth circuit ruled against qualcomm. They are waiting for an appeal and there is not a lot of clarity in todays Earnings Reports. They may be getting into it on the call as we speak but not a lot of clarity about when they can expect resolution on this idea. Qualcomm was very upbeat about the prospects for 5g in their Earnings Report saying their design wins have doubled. But investors are not sure what that revenue stream is going to look like because of this unsettled issue with the ftc. They also came out and said until they get a deal with huawei over the same issue, it is unclear if huawei will make additional payments to them. Also saying that huawei is taking market share in china which has ramifications for the entire space. Qualcomm has been on a roller coaster ride this year. It is down 18 . More than 20 now if these declines hold tomorrow. Still up 29 on the year. So quite a wild ride for qualcomm this year. President trump abruptly escalated his trade work with china thursday, tweeting quote the u. S. Will put an additional tariff of 10 on the remaining 300 billion of good and products. This does not include the 250 illion already terrorist terrorist tariffed. It included a raft of consumer and tech goods, including most apples Major Products apples Major Products. I am not concerned about that at all. People dont understand what happened. Emily to discuss, we are joined by our reporter and bloomberg businessweeks max chafkin. What does he think people dont understand . The theory from the Trump Administration is, number one, this a temporary thing, all part of a negotiation, the art of the deal, and Trump Supporters basically agree with that. Other point is that American Companies can adapt. The reason you dont see apple stock stinking right now is because apple uses contract many fracturing and in the long run, they can shift manufacturing out of china if they needed. Obviously, it would be a pretty big lift for them and a bit of a nearterm disaster. Emily so, sarah, as usual, there is ambiguity on the length of time this would be imposed , the president indicating it could go up or down, be short or longterm. Give us the details. Trump later, when he spoke with reporters, said it could go well beyond 25 if he had to go there. It just creates a whole new world of uncertainty for the business community. And i think companies, like apple for instance, this is a 10 tariff that trump announced today. When they first announced the 300 billion possibility of tariffs on the final batch of imports, the rate was 25 . 10 is not quite there yet. Still, this is the part of chinas imports that will hit consumers. Even a 10 tariff, if a company cannot eat that up, it will be passed onto the consumer. Everything from childrens clothes to toys, your iphone, this raises the possibility of those prices going up. Emily now, thus far, apple goods like the apple watch and air pods have not been tariffed, max. So how do Companies Deal with this uncertainty . Sarah and i were talking yesterday, and she indicated it is increasingly looking like there is not going to be a shortterm resolution. Max i think you are seeing companies talking more and more about manufacturing outside of china. India, manufacturing in india or other countries would be a possibility. The entire highend manufacturing ecosystem is in china right now. The other thing is they could raise prices. Part of the problem is, already, the iphone is kind of under pressure from consumers. Consumers have been hesitant to upgrade. The upgrade cycles are getting longer. You wonder if you start raising prices even a little bit, that could change the economics for apple. Emily coming up, u. S. Sanctions continue to bite the chair of huawei. They say there has been a genetic slowdown of sales growth in the midst of a trade war. In an exclusive interview, they can debt uber they hint at even tougher days ahead. Check out our global breaking news tictoc on twitter. This is bloomberg. Emily welcome back to the best of bloomberg technology. I am emily chang. Huawei continues to face the fallout of president trumps efforts to thwart it. Huawei sales growth dropped dramatically in the first half of the year amid u. S. Sanctions. Tom mackenzie sat down with the companies chairman. Roletalked about huaweis and how the smartphone business can survive without googles android operating system. The u. S. Not know when will make a decision on android and when that decision will come. We have to make reparations for our products. We will evaluate our strategy. If we are not able to use android, we have the ability to develop our own operating system and ecosystem to become the