With the chairman in the midst of a sales lunch, whose as the company has a plan b. And the cost of being cool. A former executive testifies the Company Fired thousands of workers in recent years in an effort to compete with Companies Like google and amazon. The latest on multiple age discrimination lawsuits facing big blue. Our top story of the week, apple earnings. The tech giant forecasting revenues that topped analyst estimates, and services now contribute to a fifth of total sales. They also reported the iphone represented 45 of revenue, the first time it has made up half of sales. In a way, this is progress towards apples less reliance on the flagship product and more on new lines of business. I got reaction from bloomberg businessweeks max chafkin and a Portfolio Manager, dan morgan, who manages apple stock for his clients. Dan it was interesting, if you would have told me they would have missed on both services and revenue, i would have said there was no way they would beat on top and bottom line. But as you mentioned, wearables, 5. 5 3 billion, that 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. So they did some other things to kind of help along, which initially would have thought would have been a tough quarter for them at least based on the fact that they missed estimates on iphone revenues and also services. Emily still, we have got the president warning that the trade war is not going to get better anytime soon, that could impact the iphone max. If tariffs come into play on the iphone, what do they do . Max the reality is, for years, apple has been counting on global expansion, selling lots and lots of smart phones in china. And it has been able to do that to some extent, but as we are seeing, the numbers arent there , and the outlook is in great because you have the possibility tariffs, further barriers, and these Chinese Companies will be pushing harder and harder into the domestic market in china at the same time that apple is trying to get in there. And 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 still pretty strong. Iphoneretty amazing that revenues, this has basically been an iphone company for years, and it is now 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. So that is good news for investors. Emily the Earnings Call has begun, apple ceo tim cook speaking right now, saying he is thrilled to see a return to growth. Dan, you own a couple hundred thousand shares of apple. How concerned are you about this tariff issue . Dan the tariff issues as max was saying, it is kind of a double when he in regards to shipping phones with the company , then you have the Trump Administration. Then you have things like glass covers, sensors that are shipped into china that could be potentially on a tariff watch with the Chinese Government. And the big question going forward, and maybe max can talk about it too, is 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 margins, and how does that work into the International Expansion theme, where you have annual average incomes in india and china that are a fraction of what they are here in the u. S. . It does create a conundrum going forward. It is definitely an issue in terms of trying to model out what will happen on apple with these tariffs. Emily meantime, they wants to push the services business. They still hit a record in the services business, though lighter than what analysts had predicted. But in order to 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 sales, but on the other, you cant have Services Without iphones. And i think there is some question, is apple making all this money in Services Revenue because their services are really good, or is it because they have set up this business where you kind of have no choice if you have an iphone and you want to buy an app, that is a current 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 kind of flexing its muscles and collecting revenue . And i think depending on what you think the answer to that question is is how you will evaluate the stock. If you see lots of growth ahead, you will be much more optimistic. Emily that was max chafkin and synovus Portfolio Manager dan morgan. Apples biggest rival also reported earnings this week. Samsung shares fell wednesday after the company said secondquarter profit more than halved from a year earlier. The ongoing global trade dispute and smartphones slump taking a bite out of their business. I got details from selina wang in hong kong. Selina 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. The whole industry has really suffered from low demand, falling prices, part of that because of the overhang from the trade war, economic global uncertainties, as well as slowing demand from these Data Center Players. But we pick up in the second half of the year. A big sign was they expect these Data Center Players to reconsider purchasing again. And we also saw declines in their mobile division. 42 decline in operating income. Of course, the whole industry has been dealing with problems, but samsung did say profitability was eroded because of intensifying competition in these low to midrange markets. So, some samsungspecific issues, but theyve also been dealing with a lot of global geopolitical overhangs. Emily talk to us about how the tradenk the u. S. China war and the dispute between japan and south korea are impacting samsung specifically. Selina one of the biggest overhangs for them is how long this u. S. China trade war will drag on for and how much it will have a slowdown on Global Growth, which impacts purchases of smart phones as well as all of the components. The japansouth korea spat is also a huge concern for investors. There was a lot of questions from analysts on the call about how they are going to minimize the impact. We did not hear a lot of details from executives. We know so far that they have enough components for now, despite the export curbs, 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 huaweig i if is really damaged and isnt able 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 a statement that smartphone sales will be similar to april and june. It suggests the launches of these new, flashy phone models maybe not as successful. But some of the bright spots in samsung earnings, one of them is displays is the led displays. 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, that is still very early stages, and there is 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 was that they actually 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 from hong kong. Coming up, the federal trade commission has slapped facebook with the largest fine in history for privacy violations. 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. Listen on the bloomberg app, bloomberg. Com, and in the u. S. On sirius xm. This is bloomberg. Emily last week, the federal trade commission formally announced the details of it 5 billion settlement with facebook for years of privacy violations. As part of the settlement, facebook must submit to oversight from an independent committee as well as new privacy certifications and assessments. But while the fine was the largest ever imposed by the ftc, many lawmakers and privacy groups are arguing the company got off too easy. U. S. F. T. C. See commissioner Rebecca Kelly slaughter, voted against the government. Settlement. Rebecca i voted against the settlement because 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 that in the future, they kept their promises to the f. T. C. And to their consumers. Emily what would have been better . Fining zuckerberg directly, thatw you have suggested the f. T. C. Should have sued facebook, should have sued zuckerberg perhaps personally . Rebecca realistically, you have to look at what our options were. Here, it would have made a lot of sense to take facebook to court. To say, you may not agree to a settlement we think will change your behavior, so we will pursue the terms we care about in court. Open litigation in a public court of law would provide transparency and accountability that i think are missing from this settlement. I also think the settlement is missing meaningful limits on how facebook collects, uses, and shares data. And i would have really liked to see that. Emily suing facebook directly would have been a riskier path, wouldnt it . You could have risked losing the suit. Rebecca i agree. And if you think the entire point of litigation is the outcome at the end of the day , the remedy that we can get and you think the remedy in this settlement was enough to change facebooks behavior, that i would have supported it. But if you dont think the remedy change their behavior, you can think of other advantages litigation could have in terms of public accountability, public transparency about what the company did and who knew what in the compan. And, at the end of the day, we 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, nnoah 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 that a lawsuit wouldve been a better route. Noah i dont think that is an accurate characterization of the state of play. The remedies we have achieved, both financial and injunctive, meaniohave been achieved through a court process. In a in normal litigation, you are weighing the certainty of less against chance of more. The in this case, were facing against the certainty of more and the uncertainty of getting even less. Emily what is your response to that, commissioner . Rebecca respectfully, i disagree. I dont think the terms on the table were enough to guarantee that facebooks behavior would change, or even necessarily to make it likely, because they didnt impose any public accountability on transparency, or any meaningful limitations in terms of how facebook uses data. So i would rather take the chance in court, and i think the process of litigation can make a big difference in how a company behaves. Deterringl is the company from doing something wrong and deterring other companies from doing something wrong, the prospect of a public trial can have a very deterrent effect even if the remedy at the end of the case may be different from what you can get in a settlement. Emily what about the zuckerberg personally . What kind of punishment or more extreme penalty would you have liked to have seen on him . Rebecca what i am going for is public accountability and transparency. The settlement the ftc entered into excused mr. Zuckerberg, and all other executives at facebook from any liability, and i didnt think the investigation that we did justified that excuse. I didnt think we had a basis to say that they should have no liability to react at a minimum, i would have liked to see some transparency, some testimony, some documents in court that gave us better insight into where the liability was appropriate. Emily are you concerned facebook will not learn its lesson . Do you think facebook will simply slide back to its original state of play, and given that there are no structural changes to the Business Model year, rings would just go back to the way they were . Rebecca fundamentally, that is my concern. I think that is why it is important for the ftc to use the tools and resources it has, limited as those may be, to fight as hard as they can to change the behavior of Companies Breaking the law, and teach them a lesson that it is not worth doing it again in the future, and he can simply pay a fine to make it go away. Emily in the meantime, the ftc has opened an antitrust investigation into facebook. What can you tell us about that investigation, or at the very least, your position on whether facebook is too big . Rebecca unfortunately, i cannot tell you anything about the substance of a particular investigation, this or any other. I do think that the f. T. C. Has an obligation to look into questions of antitrust violations. Those are often going to be by big companies, and all than investigations where it is appropriate to do so. U. S. Fcc commissioner Rebecca Kelly slaughter. ,coming up, weak smartphone demand and a downbeat forecast, we talk about the impact of trade tensions. This is bloomberg. Emily chipmaker qualcomm gave a downbeat Sales Forecast yesterday. At the highend, qualcomm is looking at 5. 1 billion in sales, while analysts predicted that is in line with a warning 5. 7 billion. Issued in april that demand for smartphones, particularly in china would be week. I got a run done with bloombergs Senior Market editor in new york. That forecast was very light. The eps forecast for the quarter was also really liked. They see adjusted eps of as much as . 75. The street was looking for it 1. 10. All boils down to qualcomms basic Business Model. It has this controversial practice of his set of just manufacturers,o they license them, 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 over the last few months, 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 sort of has ramifications for the entire space. Qualcomm has really 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. Emily President Trump abruptly escalated his trade work with china thursday, tweeting quote the tariffs will put an additional tariff of 10 on the remaining 300 billion of good and products. This does not include the 250 billion dollars already tariffed at 25 . It included a raft of consumer and tech goods, including most of apples major products. Earlier, trump was asked if he is concerned about the market reaction. Take a look at what he had to say. Pres. Trump i am not concerned about that at all. People dont understand what happened. Emily to discuss, we are joined reporter,omberg trade sarah mcgregor, and no bloomberg businessweeks max chafkin. What does he think people dont understand . Max the theory from the Trump Administration is, number one, this a temporary thing, all part of a negotiation, the art of the deal, and basically, tru supporters basically agree with that. The other piece of this is that is American Companies at depth. The reason you dont see the apple stock tanking right now is contractpple uses manufacturing, 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. Sarah