tv Bloomberg Technology Bloomberg August 1, 2019 11:00pm-12:00am EDT
emily: i'm emily chang in san francisco and this is "bloomberg technology." coming up in the next hour, trade tensions rise. president trump will impose a new 10% or up on $300 billion in chinese imports starting next month. this in addition to the 25% tariffs already imposed on other chinese goods. u.s. stocks tumbled. could iphone and other things rise as a result? plus, the acquisition inquisition. more details emerge about the
antitrust probe into facebook, looking squarely at the social network's buys. and cloud wars. a new u.s. defense secretary, mark esper, says he will review the pentagon's $10 billion cloud contract and concerns it is amazon is getting an unfair advantage. this following president trump's concerns. but first to our top story. president trump up ripley -- abruptly escalated his trade war with china thursday, tweeting "during the talks, the u.s. will start on super one, putting a small additional tariff of 10% on the remaining $300 billion of goods and products coming from china into our country. this does not include the $250 billion already tariffed at 25%." this after failing to come to an agreement in recent talks in shanghai. tech stocks including apple plunged on the news. tariffs in may included tech
goods including most of apple's major products. earlier, asked about if he is concerned about the reaction. listen to what he had to say. pres. trump: i'm not concerned at all. people are not understanding what happened. emily: to discuss this, we are joined by sarah mcgregor. also with us, max. what does he think people don't understand? max: the theory from the trump administration is, number one, this is a temporary thing. this is all part of a negotiation with china. it is the art of the deal. and that i think basically trump supporters agree with that. the other piece of it is these american companies can adapt. the reason you don't see apple stock tanking 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 near-term 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 long-term. give us the details. sarah: later after he spoke with reporters when he announced the 10% are in a tweet 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 announced the $3 billion possibility, the rate -- this $300 billion possibility, the rate was 25%. 10% is not quite there yet. still, this is the part of china's 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 children's 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. 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 short-term 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 other high-end 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: sarah, how about the trump administration this part deciding which products to and which products to not tariff?
sarah: it does seem they have come under a bit of pressure from people like tim cook. there were some apple products on previous tariff lists that were left off ultimately, that they were able to successfully lobby to get those products off. on this $300 billion, there has been a public comment period, and the draft list is just that, a draft list. the trump administration will have to come out with a finalist, and that is where the big question is right now. i'm sure there is a scribble of lobbyists in washington getting the paperwork in order, trying to hit the white house and get a meeting to try to convince trump to leave their products off the list. so that will be an interesting thing to see develop over the next few weeks for this 10% tariff takes effect. emily: and before the next round of talks also starting in september. sarah and max, thank you both. now pinterest chairs jumping as shares jumping as much as
17% in extended trading. reporting better than projected revenue growth and boosting is forecast for the year. second quarter revenue jumped 62%, $261.2 million, better than analysts estimated. it attributed the gains to international and u.s. growth and to the business was positively impacted by the later timing of --. of easter. coming up, investigating facebook. the government is exploring if facebook is buying companies to keep the competition down. that is next. this is bloomberg. ♪
from threatening facebook. to discuss, joining us from oakland via skype, is ashkan soltani, the former cto of the ftc. here in the studio, kurt wagner, who of course covers facebook for us. what exactly do we know about the ftc's lines of inquiry here? kurt: so they are going to be looking at all of the acquisitions facebook has made or at least some of them. there is many. there was dozens. we only know some of the big ones. of course, instagram, whatsapp. many other smaller acquisitions. what we are starting to here is they will be reaching out to people who were involved in those deals to try to get a sense for did facebook make these purchases, these acquisitions for the right reasons? and right now, that is really kind of a new element that has come up in the last couple hours. emily: facebook as you mentioned, they have acquired 90 companies over the last 15 years. the ftc's report of the concern about facebook's attempt to thwart the competition or buy companies that would threatened facebook's own app.
i don't understand. isn't a company buying another company one of the primary reasons companies do that? because they will be competition, right? ashkan: right. so the ftc, as you know, launched in june this technology task force to investigate and look at antitrust matters, including acquisitions. one of the things to think about that group is stopped mostly from the people from mergers, pushed from the ftc to the rigors division. they will be looking at whether these acquisitions were done in a way that harms competition in the market or is anticompetitive in any way. emily: so were you there when the ftc approved the acquisition of instagram and whatsapp? because there is some reporting the acquisition of instagram at least brought some discomfort to the commission. they were not quite comfortable with it but also did not think they could necessarily win if they challenged it.
ashkan: i don't believe i was involved in that matter and i don't believe i was there during that decision. the thing to think about is a lot of the decisions or considerations are for example around the definition of the market these companies occupy. whatsapp was a messaging or communications app, whereas facebook could have been seen as a social networking app. if you think of them as all as data acquisition apps for the purpose of advertising, then the analysis differs. people are coming around to the perception that it is not just about the sector you occupy, but the fact that you combine the data across the sectors to further advertising goals, to further kind of data collection goals. emily: now, kurt, there are some other companies in question here. for example, a company which is a company many of us may not have heard of. facebook uses behavior tracking technology to target companies that would make good acquisitions.
tell us about that. kurt: it was an app that people would kind of download on their phone as an alternative vpn. it routed internet activity through facebook so facebook could see what apps were people downloading to their phone, what websites were they visiting, that kind of thing. it gives them a sense of what is popular, what is growing. it is a way to spy on the competition a little bit without spying on the competition. we have been told repeatedly this is not a surprise, that facebook used that data to figure out, what is the up-and-coming app of the moment? where should we be paying attention? and who should we potentially try to acquire? emily: ashkan, many of the people who worked at these companies still work at facebook. obviously the founders of instagram and whatsapp have
left, but these committees are deeply embedded in facebook and facebook's culture. what would the remedies be if the ftc determines that there was an antitrust issue here? ashkan: right. i mean, there are many remedies. i know a lot of people jumped to things like breaking up the company. certainly the topic of a political debate in the upcoming election, the 2020 election. the thing to think about is simply breaking up the company would do little if the other people that would build the technology are still at the company and in fact could just reproduce the functionality themselves. right? other remedies, for example, the german competition authority has -- one of the concerns of opposition restrict facebook from sharing data collected between whatsapp and another of their products like instagram or facebook messenger app.
they also restrict the tracking of information from the web. the facebook like buttons and others, from being shared with other apps. we talked about it in light of this facebook privacy settlement that was announced a week or two ago. but there is a lot of overlap in terms of what remedies could be pressed for. emily: meantime, the doj has opened an investigation broadly into big tech. do we know yet or have any indication what this means for facebook? kurt: i don't think we know specifically but if you look at the digital ad market, that seems to me to be the most likely area where facebook might be brought into this. right? you look at facebook and google and the amount of the digital ad market that they control and their size and their scale. if there was one kind of industry area where they are dominant or could be perceived as dominant, i think it would be digital advertising. i imagine that will be where they get roped into this. emily: kurt wagner and ashkan soltani, thank you both. coming up, peter thiel targets china. why the billionaire took
emily: the pentagon's new chief says he will look into its controversial cloud contract. mark esper has ordered a review after president trump endorsed criticism that amazon is being given an unfair advantage. the contract eyed as much as $10 billion. complaints from microsoft and oracle, which was needed from the competition earlier this year. billionaire tech investor peter thiel has been to the braided and shunned for his contrarian views from his early days on paypal to his early embrace of donald trump when his silicon valley peers were in favor of hillary quinton.
-- of hillary clinton. now there is china, which peter thiel viewed as an economic wonder, but now he is stoking anti-chinese sentiment and stoking president trump's trade war. joining us is lizette chapman, covering the story for us. i remember doing an interview with peter thiel where he was praising the accomplishments of the chinese technology industry. how did we get to this? lizette: yes, that's right. it has been an evolution. like you said, he was one of the first to recognize the huge economic power that china has unleashed over the past decade. he looked at doing a number of investments there. investigating it for a while. but after we dug in and took a look at some of his holdings we found that he actually only placed bets on three chinese based technology startups. emily: so is this a sort of long developing theory? lizette: well, you could say that. some could also say he missed out on all the major bets that a lot of his colleagues in other venture capital firms did
extremely well in and made huge returns on. jd.com and alibaba for that matter. depending on your point of view, it could be summer grapes, could sour grapes, or could be missed out on all these great deals, or could be a serious look at what he considers a brewing cold war between the two countries around technological edges. emily: after thiel made those controversial comments about google, which to remind reviewers he said google was doing work in china, openly questioned whether they have been infiltrated by foreign spies. the president praised those remarks and said the administration would look into google's work. president trump calling him in a tweet as a great and brilliant guy. how does thiel's relationship with the president impact silicon valley? impact u.s. companies? lizette: right. well, he definitely has trump's ear.
he has installed a number of his former coworkers and in the top positions in the administration, so those ties definitely don't hurt. he also made some huge bets on companies, including palantir technologies, which i know we talked about before. and the oculus founder's vr's digital surveillance company, and spacex, and all of those large contracts with the u.s. government. whether they are larger because of trump and thiel's relationship or not is anyone's opinion. emily: and palantir is a did data intelligence firm that works closely with the u.s.
government. there is technology that can be tracked across the u.s. and mexico border. tell us about that. lizette: correct. both of them, like spacex, have large contracts with branches across government, the department of defense. and as they have evolved in technology has evolved, the contracts have also gotten larger. at the same time, thiel's has also gotten larger within the trump administration, with confirming mark esper just hours ago. emily: just a reminder thiel is on the board of facebook, of which google is a huge competitor to facebook, but you wonder if he has any influence on the president when it comes to these antitrust investigations, lawmakers scrutiny of big tech companies, which always include facebook and google. lizette: that is a great question. what we do know is that shortly after peter thiel made these unsubstantiated claims about google possibly being infiltrated by chinese spies,
trump did tweet that out and urged an investigation, which came forth the following day with a statement from the white house saying they had found no evidence. whether there is another story, a follow-up story after that remains to be seen. emily: steve mnuchin echoed that statement from the white house. lizette chapman, thank you so much. great in-depth story out by you about peter thiel. finally this hour, you may think of diamonds as a girls best friend, but what you may not know is they are also considered the computer chip's best friend, a viable and even superior alternative to silicon. in silicon valley, they are being used to fuel advances in 5g, satellites, quantum computing. i recently visited a lab that grows diamonds and how they are made, what they are for, and of course tried a few on. it sparkles. it shines, and it is one-of-a-kind. but this diamond is not the
product of mother nature. instead, it comes from a lab in a process that is shaking up the $80 billion diamond industry. how long does it take from start to finish to grow a two carat diamond? >> it takes a couple weeks and a couple more weeks to finish it and do a polished. emily: the same characteristics income can make up as mined stones without the controversy of their origin. >> you start with this foundational piece. once it is in the reactor, carbon atoms start to come down one at a time and connect to the diamond below it. atom by atom, a growing diamond. all of the reactors we created in-house. that is where all the magic happens. emily: martin and his team at diamond foundry in san francisco have been making these gems. >> silicon technology, and we recognized the technologies we use can be applied to diamonds of high quality in ways that previously were impossible.
emily: but they are not the only ones. there is new diamond technology in st. petersburg. technologies in singapore. and even in the centuries old diamond business getting in on the act. in 2018, it launched a fashion jewelry retailer called lightbox jewelry, targeting younger consumers, selling them for $800 a carat. 1/10 of an actual gem. questions remain how well man-made diamonds will hold their value. >> probably will produce 35 cubits of natural diamonds this year. you look at the global output of man-made diamonds produced for jewelry, it is probably 5 million carats. but it was well under one million carats just a few years back. emily: last year a major win for producers of man-made diamonds when the federal trade commission amended its jewelry guidelines, clarifying a diamond is a diamond, regardless of its origin. currently, man-made diamonds
account for 1% of the $14 billion global rough diamond market. that number is expected to grow to 7.5% mined as early as 2020. much of that growth is in the luxury jewelry market. but the real money opportunity to use with a developed in this lab to fuel the future of silicon valley. >> we now have the ability to develop the first diamond wafer. a lot of technological applications, for digital networks, 5g networks. >> these petitions go anywhere from quantum computing to high-tech laser and equipment. we are probably still a good 10 years away. emily: ultimately, diamonds are forever but consumers now have a choice. and the prospect of them enabling advances in technology of the future is bright. coming up, youtube taking serious measures to secure its children's channel. plus, the changes have content creators scrambling. will youtube be able to fine-tune its kids content?
emily: welcome back to "bloomberg technology." earlier in the show, we spoke about the federal trade commission's continued antitrust probe into facebook, but that is not the only company they are going after. youtube has been in the crosshairs over violating its children's protection act. youtube made a significant change in july to it software to boost "quality children's content." show creators feel they have been left scrambling. content creators noting a drop in traffic after the company unveiled the software change. what are the changes that youtube made?
>> the company says they tweak their software a few weeks ago to promote more quality family content. they have been talking a lot more in their earnings calls even about youtube as an educational tool. there has been pushed back saying that it is not actually an educational tool but an addiction tool that shows harmful and sometimes dangerous content. emily: what are the problems that remain? content creators are not happy about this. mark: it's not like there's a slate of programming on
television. they make these tweaks and often do not talk about it, and you have people who have built their entire livelihoods around youtube channels and make ad money off that, and they lose traffic, and there's no explanation. emily: are they being deep prioritized because of their content quality? mark: i could offer educational content, right? and i don't see why i'm being punished. some of the most popular channels are the nursery channels. there's not necessarily a clear curriculum or purpose to the programming. emily: talk to us about what we know is going on with the ftc. we have had a few commissioners on the so -- the show in light of the settlement with facebook. i have tried many times to get the status on youtube but have not gotten far. mark: yeah, we don't know much. you can see similar trends
looking at youtube. youtube has come out and said they have terms of service, no one is using -- no one under 13 is using their site without their parents watching. emily: that is badly untrue. any parent will tell you that. mark: the issue is what you label as children's content. nursery rhymes, sure, but gaming, pewdiepie? there are a lot of definitional debates the ftc is probably having with the company. emily: how does you to walk this line helping to appease creators who help drive traffic, pleasing regulators, continuing to make money, and also cleaning up? pewdiepie, despite the fact is really popular, has really crossed lines sometimes.
mark: youtube is not dependent on one creator, for better or worse. they have thousands. some of their biggest nursery rhyme channels dropped off, the company would still do fine. these are incredibly complicated issues youtube has been wrestling with for years. with children, it's even more complicated. the executives have talked a lot about putting a lot of effort into their kids app. they created this relatively safe playground. we have reported on this before. parents do not know about it. children over the age of seven do not want to be there because it is largely for preschoolers and toddlers, so they have not announced a fix for that yet. emily: great additional reporting for you. thanks. according to regulatory filings
detailing ex-husband jeff bezo'' stock holdings, she is the second letter shareholder. largestecond shareholder. the same filing shows jeff bezos sold over $1.8 billion worth of amazon shares in july, his largest stock sale today. do we know anything about why he sold the shares? matt: not a whole lot. he said a few years ago he has been going off his stake in amazon. rockets, where we plan to get to the moon, a very expensive proposition. until recently, it was at a $1 billion year pace, obviously going up a bit here. emily: does this impact amazon or business -- bezos' control of
amazon? >> it really does not. he never had total control of the board of the company. mckenzie took 4% ownership, but jeff bezos retains a full voting stake for that 16%, but he's got pretty much full faith of investors and the board and seems. emily: where does the money go? >> for jeff bezos, he certainly has a philanthropic arm as well. he spent a couple billion dollars on a couple of issues -- homelessness and education. it's the left to be seen with echoes. in contrast, mckenzie bezos has said she plans to take the giving pledge and give a giant chunk of her portion to charity
under the gates-buffet scheme. emily: what have we heard from mckenzie bezos? >> we have not heard a lot. she's kind of really low profile here in seattle and nationally. she is an author. she has been involved in anti-bullying for a while. there's a lot of questions about what she does when she decides to exercise her portion or what charities she might put it towards. emily: that said, it almost feels like we are hearing more from jeff's owes himself. he is doing more media interviews, more on the conference circuit, more out in about. do we know why that is? >> i think part of it is the surface area of amazon. they made a big push into hollywood in recent years with the studio's business. they have surface area all over the place. just is owes personally purchased "the washington post." unlike the early years -- jeff bezos personally purchased "the washington post."
unlike the early years when he could just hideout if you wanted to, he owns one of the biggest favors in the country, so that is not a lot of hiding. emily: coming up, three days of declines for the philadelphia stock exchange to make and dr. -- philadelphia stock exchange semiconductor index. this is bloomberg. ♪
emily: carl icahn disclosed an active 12 points 6% company and carter, causing shares to rise -- carl icahn. he also plans to have discussions with other investors to consider all options with regard to the investment. his stake is worth over 419 million dollars. shares of qualcomm down close to 7% as the chipmaker gave a disappointing sales forecast driven by week smartphone demand. joining us on the phone, senior analyst at bernstein who currently has a market perform rating on qualcomm. with us in the studio, ian king, who covers the chip sector for us. ian: their explanation was phone
makers have given up on new phones, consumers do not want 4g phones anymore because they have heard about 5g. at the end of the year, everything will be great again. emily: what is your take on various indicators, various trends ian noted pushing things in the wrong direction? >> they pointed to a number of things, and ian was right, it was not bad, it was horrendous. by far the worst guidance we have seen so far. they pointed to the pause in front of 5g. they also pointed to wally -- huawei focusing on china, taking share in china. huawei makes their own chips, so they do not by qualcomm chips. demand has been weak for a wild. -- for a while. the fact that huawei makes chips
is not new. i might say there is a definite discrepancy between what qualcomm is showing and others, but the definition is weak. emily: 5g has been slow to come. on the call, it seemed like they set a record for simply mentioning 5g. our investors buying it? >> i do not think investors are necessarily buying it, but they did give some concrete metrics. in general, they were saying this is coming way faster than 4g did. we are not going to see the holdover for jihad where you had these big, ugly phones that
4g where youer for had these big, ugly phones that nobody wanted. everybody is going to come in and come in fast. >> presumably if you own the stock, you own it on that 5g story, i don't think you are selling after yesterday and i think the stock showed it. it was down yesterday but not really down more than anything else we have seen in a weekday. they are basically suggesting to everybody this is just an air pocket. it is a big one, but it is an air pocket and the dream is still alive. it may happen, and that is fine, but we are talking a year out. it is a long ways away. a lot can happen between now and then. you have legal overhangs that are still there. i think there is enough risk to make me hesitant to die then. i don't want to wait around for a year to see if it is real or
not. i still do not know how bad things can get between now and the end of the calendar year. emily: qualcomm had to cut off supplies to huawei because of the u.s. blacklisting. give us more details about what they said about the trade war. >> they said the huawei situation has had a strange effect on particularly the china domestic market because they could not do much business in europe anymore where it was using qualcomm chips are took a lot of market share in china where it uses phone chips. that hit qualcomm's other chinese customers, and that created a situation, and as the ongoing legal entanglement's, they are not getting paid by huawei anymore for licensing. emily: we did speak to intel's ceo.
take a listen to what he had to say. >> overall, demand has slowed as customers have digested fairly significant purchases last year. second, we saw a bit of an acceleration in demand heading into the second half in the second quarter because the fierce of the potential additional tariffs being imposed, so those combination of factors have china, which is an important mark for us, the end of little slower this year than we had anticipated at the end of the year. emily: what is your outlook on the chip industry in general as the president threatens to slap another tariff on $300 billion more worth of chinese imports and no end in sight for trade tensions? >> we are fairly cautious on the sector as a whole. i have had a believe since earlier in the year that numbers were likely to high and needed to come down.
all the companies were talking about potential for this big snapback earlier in the year, and it is becoming increasingly clear that will not happen, but stocks have continued to rise and valuations are elevated. i would argue that there is -- the idea of a snapback is getting priced in, and i think the prospect of actually achieving that snapback is diminishing by the day. i think this earnings season has kind of back that up. this has probably been the third round of cuts we have had. some of these cuts are fairly sizable, and i think members are coming down, and stocks have been down a little in the last couple of days, but in general, you look year to date, they are still up very materially. we will see where this goes, i guess, as we go through the rest of the quarter and see what impact it any this new round of tariffs has on things. emily: what are the next big indicators you are watching? >> we are kind of through
earnings season for this period, but with companies and cisco and in video coming up with earnings releases like they are going to talk about where they are, it kind of rolls on, but i think the longer term point that people like stacy and a lot of people are concerned about is by imposing -- by creating this trade tension with china, how it would give a massive wake-up call to the chinese electronics industry, the chinese semiconductor industry to move away from dependence on these products. are they going to redouble their efforts to become independent or increase their independence and what long-term impact that has? i think that is going to increase their impact. emily: what are the main things you will be watching foreign terms of signals in terms of which we the wind will blow the next couple of years? >> the deterioration with china is certainly one. i think the chinese have been
moving toward self-sufficiency for many years, but regardless of what happens, if we get a trade deal or not, i think that moves toward self-sufficiency -- that move toward self-sufficiency has to be accelerated. there is no way they could be fully dependent on parts only the u.s. can provide. i think that will progress regardless of what happens with the trade deal and regardless of who is sitting in the white house in two years. beyond that, we monitor the same things we always do. we monitor inventory levels, noise in the supply chain. right now, those things do not look so hot. we will see how things progress as we go through the year. in general, i would say we are probably in for more -- at least during this in ministry and, we are probably in for more volatility on the news flow than we have had to worry about in the past.
shares have been on a terror the tear the last year. what is driving that? >> it is the strength in our live services. we have a collection of brands and franchises reaching all-time highs. in addition to that, our perennial franchises had very good quarters. "words with friends" on its 10 year anniversary, which is this month, hit its best mobile record ever. it is exciting to see those products hit new highs. we also launched a new game, our "game of thrones" casino product, which is off to a great start, and we offered three new games with test markets. emily: for many tech companies, the story is about smartphones. zynga obviously thrives on the mobile platform. does the smartphone slumped impact zynga? we all have phones, but we're not upgrading like we used to.
>> it is not as tight as it used to be. what you see now is a big jump in engagement. people are playing more games and playing them longer, so that offset any dampening you see in terms of the now replacement business basically in the west, but i would point out there are still great growth happening in asia and emerging markets where you have very high performance handsets that are very inexpensive and we are starting to see game audiences appear in markets we have never seen before like india, nigeria, the middle east, really finding our brand appealing. emily: i know i asked you this early, but do you know about what apple's game streaming platform will mean for you? >> i think it will be interesting in terms of how it rolls out run the standpoint there's 2.4 billion mobile gamers in the world right now. there are so many choices available to people right now.
when you look at apple service, it is not very couple of entry to what we do. it goes against what we are trying to put out there. emily: how so? >> if you look at the way it is merchandise or positioned, it could be an interesting new dynamic in the marketplace, we feel confident that original ip will stand on their own and have their own audiences. emily: what should we be watching for in the gaming space in the second half of the year? >> in the next few years, you have dynamics that are really interesting. the consuls will transition to new hardware next christmas. you have five g and for structure coming which will create high-performance for mobile. opportunities rom a distribution standpoint. streaming is becoming a technology people are using more
and more. also what is interesting is cross-platform play. you are seeing people on playstation's play with pc. that will drive long-term growth inside the mobile gaming business. emily: good stuff. thank you as always for stopping by. good to have you back. that does it for this edition of "bloomberg technology." remember, we are live streaming twitter. this is bloomberg. ♪
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