tv Bloomberg West Bloomberg September 22, 2014 6:00pm-7:01pm EDT
♪ >> live from pier 3 in san francisco, welcome to "bloomberg west," where we cover innovation, technology, and the future of business. i'm emily chang. the obama administration has just launched new rules to reduce corporate conversions and reduce tax benefits. we will look into how the new rules impact potential acquisitions. iphones are off to a record-breaking start. they sold more than 10 million six and six pluses over the weekend.
we look into what customers are buying them and when it will be available in china. taking the human resources department online. helping employees and health care coverage. managing payroll and benefits. zenefit with the ceo of s. to the lead. the obamaeaking news, administration is taking aim at corporate tax and version. -- inversion. of companies are seeking foreign mergers for taxation purposes. cory johnson by and peter cook in washington. what steps are the government taking -- is the government taking? >> it only involves deals closing today and forward. it is not retroactive. that was a big question. how far back would they try to
reach, if at all? we know it is not retroactive. what they are doing with the rules, it is safe to say that they have chosen to do things that tax professionals and tax attorneys i have been talking with over the last couple of weeks thought this is where treasury was heading. jack lew said that he did not think treasury had any tools in the toolbox to deal with these issues. what they are doing is hop scotching. it limits firms. it makes it less economically attractive going forward. they are tightening the rules on what constitutes ownership stake and equity ownership stake in the company. it makes it more difficult for foreign companies to meet ownership thresholds required by
the u.s. government for tax purposes. they are tightening the tax rules for subsidiaries for taxation purposes. they are tightening up these rules to make it less attractive. what is important to note is that, in his comments associated with this, jack lew said that these first targeted steps make constraining this and meaningfully reduce the economic benefits of inversions. possible, stopping them altogether. he goes on to say that this is a first step and the treasury department is prepared to go further, if necessary, to deal with the wave of inversions. short of congress acting on its own, which is what the administration would have .referred, that did not happen there are a lot of members in the corporate community having to assess what these deals --
what this means for deals pending. medtronic, ag, deal with google's health startup, what companies and our world will be affected? -- in our world will be affected? this iswill argue that fundamentally based overseas and we have not seen a lot of tech companies do this because the basic rules require that most of your business operations are in foreign countries. there is not a lot they could do. from your perspective, is that the worry? biotechis spread from to burger king, which was a wake-up call. could this spread to lots of other industries? >> absolutely.
this would have a chilling affect on all of the activity out there. thatreasury response is this is targeting companies that do this for tax purposes and not real business purposes. they are making the case that cross-border mergers are good and they will continue to support those. they think the rules are tight enough that they can effectively transactions going forward that they did not think met the test. >> some companies, like google and yahoo!, having criticized for years for keeping money overseas. this is different, right? about doing an acquisition to change your head structure. like you are in a lower-taxed region. one of the things that is interesting about the deal is that some corporate mergers make
sense because of that tax change hopscotching.o created this to reduce the deals and repatriate money. we have not seen that. there have been complicated structures. maybe now, we will not. >> cory johnson, our editor at large and peter cook, thank you. >apple has a new record number f iphones without selling them in china. when will they hit china?
today, the stock closed down slightly. so, what are the risks associated with alib aba's ipo? joining me now is cory johnson. >> it was pretty flat. they do not want this to collapse on the second day. they were active. we know that it is easier for them to do that. it is interesting. there is a price that makes things different for alibaba. it places a different emphasis. is a different matter. it means that alibaba is an expensive stock now. just my opinion. >> at $68 a share, it was below its peers.
exactly. it is a question of how fast it is growing. right now, it is valued at 55 times the operating profit and the operating profit is growing 52 times. the price to earnings growth is equal. the problem is, the growth rate, while it was 62 times in the last year, it has been coming down and the growth has slowed dramatically. that is a problem for the company. i am not saying the people who bought the stock are morons. are thinkingpeople something different. >> what are the challenges question mark >> the comparisons out there are amazon and principal businesses in the u.s.. that is not how chinese spent. -- spend. >> we have home equity loans to
buy new cars. americans spend a percentage of gdp. in china, that number is only 36%. bae of the things aliba tried to convince investors is that they are spending money in ways they never have. if that happens, alibaba would be a beneficiary. >> there is a rising consumer class and they will spend more money. >> here is an interesting thing, customers are buying from ali baba more often. the average customer used it 35 times a year. the average user uses it 52 times and every week, they buy something on it. you might expect the chinese revenue to start to grow faster. that is the kind of fun a mental change a -- fundamental change
alibaba needs. ma and his son called it a jumping off point. >> just by having shares in pocket, they borrow more in other places. just because it is not selling does not mean he is not taking profiteer. international revenue and what we see is the numbers are growing. there has been a lot of talk of the u.s. as a future market. that market is growing. as a percentage of revenue, it is not as important. it is less important than it ever has been. >> that does not mean that it could not be. >> anything is possible. look at the last six quarters. the percentage of revenues have gone from 12% to 9%. asear ago, it was as high 26%.
it is coming down and it is a function of chinese growth. international is not as important. >> they have to focus on small businesses and making investments in small businesses that have to grow. what does that mean? >> it is enabling buyers and sellers to come together and benefiting from that. alibaba benefits. they are the opposite of walmart and amazon. investor would have to believe that there is a growing mobile phone usage in the middle class and they are going to use alibaba. they have seen a tremendous growth. you have seen the number grow from 11%, 18 months ago, to 33%. the business was happening on
mobile devices. the problem is there are fewer conversions. a lot of people who go to alibaba on the phone do not buy. >> they window shop. >> that is a problem they have to fix. 33% of userse that are on mobile, there is not conversion. >> a competitor is more mobile-first. >> right. they have to be successful in mobile. >> cory johnson, our editor at large, thank you. sony is set to release -- next month. what does it mean?
together? i am joined by cory johnson and ellen ritchie. how does apple pay work? >> the way it works is, you pro vision your card by taking visato, in the background, , working with your bank, verifies it is you. itn you have done that step, all happens in the background. you can simply wave a phone after pressing your fingerprint reader and it will make the payment. >> there is risk perspective. we have seen credit card breaches at target and home depot. had they been more mainstream, would that have happened? theo one thing can solve problem. we have very enterprising criminals attacking the
financial system every day. and similar technologies that you can get soon will be a big part of the solution, along with the new cards that you mentioned. specifically about these technologies, does visa have more cards using the chip technology than using different wallet formats? apple pay or whatever. >> most of our payments in the u.s. take place on plastic cards. the mobile technologies are relatively new. we think they will be taking off. right now, the overwhelming majority is on your plastic cards. they will be swapped out for those new chip cards over the next two or three years. >> how fast will you guys actually be swapping them out at visa? >> a great question. that was what i was about to tell you. visa itself doesn't put the cards out. it is our issuing bank partners. so, whatever bank issues our card, they have told us that by the end of 2015, we should have 575 million chip cards in the u.s. market.
huge numbers. >> specifically, do you think that the value proposition for apple is different because they have biometric id on the device? therefore, they will have a lot less risk. >> i think the apple proposition is a strong one, from a security point of view. it isn't really about the fingerprints as much as the technology that operates in the background. that includes chip technology, which generates a one-time code, which can't be replicated by criminals. it really makes the data useless to criminals and will be a big data andevaluing the making the system a lot safer in the future. exactly the same thing the chip cards do. >> i don't understand the difference. readert now, the store reads the card and it has a
series of numbers that can be used to make a fake card. code,ou have a one-time it does not matter whether the data is stolen. you cannot use it without a new one-time code. it is generated by a chip in the card or on the phone. >> in other words, you are saying that the retailer never has the actual number and hackers can break into target and home depot a lay want. there is nothing -- all they wan t. there is nothing in there. >> we can take it out of harms way and out of the line of sight of criminals that are trying to steal data. >> the technology that is integrated in apple pay is different from chip and pin technology. just adding layers of security to the actual transaction? >> yes.
it is adding to all of the transactions. it is important to know that the criminals always go to the weakest link. you have to secure a physical point of sale where you use your card in the terminal and the digital point of sale. whether that is mobile or electronic, the technology is operating on the same principle. it is implemented differently depending on whether oyou are there. willu mentioned that visa ion cards out there next year. cards --ilers have the the hardware? >> the retailers are coming a little slowly. they have to swap out the terminals. they have done the work and many of them are in the process of upgrading their system to read the information. we expect significant numbers.
i do not have an exact number. predicting 30% will be chip on chip by the end of 2015. >> that explains why credit card processing is so hot right now. if i was apple, i would say to visa, i do not care if you think the token is great, the thumbprint reduces the risk of stop explained to me why the thumbprint is not reducing risk. >> let me start with the tokenization. it creates a single digital account number, similar to the code on the card. it reduces the risk. the thumbprint is a great thing. don't get me wrong. it is what we call static data. it doesn't change from use to use. so, in theory, our ingenious criminal minds could eventually be able to counterfeit that thumbprint data, as well.
it is good. it is a combination of things that really make it work. especially the static data -- a limited in the static data through tokenization -- a eliminating the static data through tokenization. >> is apple taking a part of your cut? are witharrangements financial institutions. the economics for visa does not change. >> all right. thank you so much. we will be right back with more of bloomberg west. ♪ >> time for bloomberg television on the markets. let's take a look at where the stocks traded today. we saw decline for major averages. 1-2 punchunch here --
>> welcome back to bloomberg west. off to aew iphones are fast start setting a new record for opening weekend sales. they sold more than 10 million iphone 6 and six pluses beating sales of the five s and five seed by about one million. cook says while the manufacturing was better than iphoneswe have many with greater supply and working hard to fill orders. the phones will go on sale in 20 additional countries later this week. one place that would not be happening as china where the new phones are delayed. . sat down with cory johnson
i asked alex if the $10 million -- 10 million unit figure is really that good of a start. >> it is up from 9 million last year from the five s and five c. they had some manufacturing constraints. most likely, that is on the six plus side where manufacturing started a bit later. a good start. we are only in nine markets, 24 as you said and hopefully china will be among them. >> this is about manufacturing, not marketing? we have been discussing the issue is apple holding down supply in order to increase the hype? >> i don't think apple does that. they do the best they can. it is less than two weeks from announcement to ramp. samsung would do that with a note 4.
it is a manufacturing marvel. some people will have to wait a bit longer, including a lot of people in north america for the larger screen iphone 6 plus. >> do you think there's a particular component that is difficult or did they push the design into the weeks before the announcement? >> the speculation is a larger screen sizes on the iphone 6 plus were problematic from a yield perspective. >> the yield of the glass is sapphire or not? >> sapphire protection, yes. >> they're not able to is excessively make enough of this stuff? >> essentially. we have not been able to confirm that but we believe that is the case. >> it is unclear if the six or six plus is more popular -- it seems the six plus a sold-out and more places but that isn't necessarily mean people are buying it more. >> there are a few of them to be
bought. there are indications there have been outside demand for the larger screen phones. when we get the launching in china, i expect those to be extremely popular in china as well. there haveina -- been unconfirmed reports that the chinese government has not approved of the phone and maybe not for a while. isknow china as a government recording some local novo --rers, when lenovo. what do you know what is going on in china in terms of the regulatory approval? >> china is going to happen, in our view. we have already got the five s on sale in china. china was a graveyard or free for apple last quarter. china mobile is working hand over fist to install infrastructure. they up cited last week of their target for 4g based stations and
now the intended figure 700,000 infant of 500,000. -- instead of 500,000. all tara is a company that we believe should be bought on that upside announcement. the stock. apple is going to come after that. i think it is very wise for apple to wait until it has sufficient supply to go after that market. is the regulatory portion of this? probably. >> when it comes to the other countries, how do you expect the sales to play out? what kind of international rollout are you expecting? >> very strong because the other geographies have been starved for a longer screen phone. people cannot afford a hybrid device that can do both roles. there is also the nations where there is a greater degree of commuting by subway, rail where
the larger screens come into play. we think it will be a very strong and national rollout. >> last year, we got the figures and the quarter was better. meank now and does it things are worse than expected? >> what is interesting is that we have not had in previous years of them talk about the pre-orders and the initial weekend sales. there is more information this year there was last year. perhaps, they're just teasing it out. we will have to see. basil up the rollout. -- they still have to rollout. >> what are you expecting in october? >> it is another really important aspect of the story. apple was working with ibm to increase the penetration of enterprises. we would like to see what these new ipads and a strategy on how they will do that.
they can go a long way with replacing and modernizing the way people franchises do business. could also bleed into the ipad. >> i spoke to sources at ibm on the sales side. one contingent was the sales force is stoked to have the ipad to offer to customers and said offering them subpar tablets or saying to get it your self. also, the application development within ibm will be the driver. this is coming from the bottom of the sales team -- not the ceo. >> we can look at a right now. apple pay is a wonderful marriage between hardware and an application and bringing along an eco-structure -- an ecosystem. let's at ibm to this equation and all those fortune 500 relationships. all those business and need cases that they can now bring specific technology solutions to with an elegant hardware
♪ >> welcome back to bloomberg west. dnc is exploring its strategic options as it faces pressure and upcoming retirement of the ceo. the source for bite or has contacted oracle, cisco, hp, dell and others about a possible sale. they say a deal may not happen. emc started a strategic review in the spring. after much anticipation, the opener role in period for
healthcare.gov starts next month. one startup is looking to help simplify the sign-up process. toefits sells the software help small businesses buy health insurance and other employee benefits. i spoke with the ceo and cofounder parker conrad and started asking how the company works. >> we sell this problem that is common to every business in the united states with less than 1000 employees which is that businesses have these separate systems related to human resources and their employees. payroll, benefits, time and attendance. anyreates this problem at time you hire or terminate someone, you remove them from 15 different places and somebody has to do all this work manually, often on paper via fax machine. we take all that stuff, put it in one place. remove it all online and automate a tremendous amount of the work so that you can focus
on your people instead of paperwork. >> 11 interesting personal story -- you have an interesting personal story that has helped you do this. you battle cancer yourself. >> i had cancer about 10 years ago. when you have a condition like that, you have to be very vigilant about health insurance. as a result, when i started this company, i was looking around and wanted to do something that was related to the affordable care act which was tied in with the health insurance market because i saw these broad changes coming as a result of the legislation and potentially an opportunity for new companies that can be more men -- nimble and move quickly than some of the incumbents to grab market share. >> how does this tie into the affordable health act? think that everyone who is focused on the employer mandate and what that is going to do employers in 2015 is
looking at the wrong thing. the employer mandate does not matter as much because most employers are already offered health care.coverage e. the real issue is the mandate for employers to jump through a series of compliance hoops that the federal government imposes. they released the guidelines and the former employers have to fill out is an entirely new tax return. it is a complex thing and nobody is really focused on this. i think there is a lot of what zenefits is helping businesses jump through these compliances. there are a lot more coming down the pipe. we think we can take all of that on for companies so they don't have a deal of it. we do it all for free which is the best part. >> you are backed by andreessen horowitz, $100 million -- how many businesses are using zenefits? >> a little over 2000 companies and 50,000 employees.
>> the health insurance brokerage market is worth $18 million. how much of a piece of that can you get? >> we want all of it. tourance brokers happens sit in front of 20% of you just -- of u.s. gdp. we can provide a lot more value than the existing folks in the market. >> you are backed by jared leto. how does he fit in? >> jared is, in addition to his many talents, is a small business owner and entrepreneur. he was really intelligent about a lot of this stuff so we wanted him on board. who are your main competitors? >> we compete with a lot of companies. a thing of our software as a hub and spoke model where you have a central system that these nodes connect to.
what happens to as we compete with a lot of individuals. wage workswith versus commuter benefits, insurance workers on the insurer's side, different companies for time and attendance software. nobody is taking this all in one integrated approach that we are taking. that is why i think it is very powerful. >> do you think you can make all of these benefits cold? ol? it is kind of a pain to deal with a lot of the different -- >> this stuff is tremendously unsexy. i'm not sure we can fix that but it is a huge headache for a lot of people. >> the fire that you're always putting out behind the scenes. i know friends and work at the hottest companies it is always one catastrophe to the next. tell me what it is like behind the scenes. a growing or starting business is somewhere between a very, very hard and absolutely impossible. behind the assad of every entrepreneur who is killing it
or crushing it, i think there is somebody who was worried about -- are they going to launch the product on time? are they going to be able to raise their next round? what they do this whole thing fails and goes under? i am sure is hard and everyone, including people who has thatg well, aghas stretch. >> tell me about the times you felt you were on the brink. quicklyve grown really and that is created challenges for the operations. thee was one point that rate we could physically sell to customers was too slow. we were getting 18 new customers every single day. there was a growing backlog. and threatened to be a company ending catastrophe. problems are usually engineering challenges so we threw a lot of engineers on this working day and night and weekends. in seven days, we got this brand-new program that totally
absurd. while activism says it is protected under the first amendment. sony robo is a next month in the u.s. cost $99.99tv will and let players stream games onto the television. of the box be expended for even more entertainment options? cory johnson. could it be used to expand entertainment options or is the target audience gamers? >> it could be used for other entertainment options. it is already being used for sony in-house. they will not say yet what else it will be used for but it certainly has the option. firstas always been gamer so we will see how soon it takes them to get that far. >> what kind of other companies are they targeting?
are they targeting apple tv, roku? >> i asked him that just today. they said yes, it can but because it is gamer first they think they can do more than apple tv. they offer 700 games, that is the selling point. it works in conjunction with their playstation 4. you can use your playstation 4 in your living room and then you can have your playstation tv in your bedroom and shrink the games that you are playing on the tv in the living room. division in sony was so important for the company for so long but it has been an anchor for the racks -- for the next 40 years. is there a suggestion they can get out of the making of the glass and stick with the electronics when they have better profits and maybe a better business someday? >> last week, they had a lot of bad news. they are not ready to let go of it yet. a lot of investors do want them to let go of the business.
it is something they are still working on. games are regrowth area however games are also a smaller area. has beenystation leading the xbox for eight consecutive months now. investors, from what i hear, want to have them bring more games to more platforms. they are suggesting the playstation stream service will be available on smart phones and tablets as well. >> to break out of the idea to make everything -- this device is fairly interesting if they open it up to other developers. what is the pace in which that might happen? that is so important to the success of the playstation at every release. >> it is definitely early. there's a trend to figure out how to market this device because they are doing -- and does so many things and the offerings are kind of confusing in terms of how it fits with the playstation and even smart
phones and tablets. tv sol work with bravia that is something else. we will see where they will go with other devices. >> in terms of other content that may be available, what do we think? netflix? >> i have not announced anything like that. i don't know but we will see. it is certainly possible. it is kind of difficult because they do offer their own in-house streaming service so we will see what they decide to do. >> it seems like there in-house streaming service has always been an and one. morery notion that a lot content will start streaming when it has not in the past? >> we will see. the gaming division, it is interesting because they are trying to stay gamer focused. their making original content already. type a comic book storyline that they are developing for this as well.
we will see what other kinds of content that will be available for this device because for them, the gamer is first and it has worked for them. gamerse huge audience of right now and they don't want to stray too far from that but they do want to enter these other entertainment areas as far as this device goes. >> thank you so much for joining us. it is time for the bwest byte will be focused on one number that tells a whole lot. what do you got? >> it is three. scored three points in the game. there are three u.s. tech companies that have orchestrated tax inversions in the last day -- decade. globalompanies liberty and a 3-d printer maker has a big operation in minnesota. compare that to 14. that has been a technique of biotech companies to change
their -- the couple of oil and gas to go to companies as well. burger king attempting to do it with similar in -- with tim horton. these are some big changes. >> i find interesting is taking so long for the treasury to take these steps. republicans and democrats agree this is not a good thing. it is agree with going about changing it. quacks it is been brought -- >> it has been brought up by the left. >> we should change everything. >> a lower corporate tax rate that is closer to the rest of the world. companies have been trying to find some way to get around u.s. taxes weathers keeping profits overseas. someday, and inversion technique may be falling to the wayside as of just out. >> cory johnson, thank you. thank you all for watching this edition of the bloomberg west. you get all the latest headlines
>> welcome to "money clip," where we tie together the stories, interviews, and videos in business news. i am adam johnson. a rundown of today, the most influential bankers and investors are all under one roof. we will take you to bloomberg's special summit right here at the big apple. the second largest retailer in trouble. tesco says a quarter of its profit does not actually exist. in world, the ukraine tries a cease-fire attack. we will go underground. in sports, the nfl holds a friday night news conference will be forgotten by monday. it is ay