tv Bloomberg West Bloomberg October 6, 2014 11:00pm-12:01am 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. here is a check of your bloomberg top headlines. the company was dealt a blow after the new iphones did not use the sapphire screen, although two versions of the apple watch will have them. ebay has started a new live auction site. business aimed at improving
revenue. the company, which makes software that allows people to sign documents digitally will use the money to expand internationally. first to our lead, hp is taking a page out of ebay's book and will split into two separate companies. the move will allow it to better adapt to changing economies and shareholder value. as part of the move they are also having another 5000 jobs, bringing the total job cuts to 55,000. cory, are they better together or separate?
>> divorce makes you sad. this is one of those things where you can see the writing on the wall. you could make the argument that meg whitman got the job here at hewlett-packard, right here in palo alto, because of the decision to sell the pc business. a decision she rescinded, and took the thing off the block. there were no buyers then. behind the scenes, they had been trying to sell it again and found no buyers.
now they will stick it to shareholders, let shareholders decide whether they want to keep it or not. they are calling it a nontax transaction. let's look at what the split means to how the businesses will work. on one side, you have hewlett-packard enterprises. you have the enterprise group which is the old eds business, as well as enterprise services. software is a small part of the business. on the other side is hp inc. it will be personal computers and printers. the businesses are virtually the same size on the top line. profitability is about the same. the enterprise business has a slightly better profitability than the printer business. fundamentally, the operating profits are 10.5% on one side, 9.5% on the printer side. what you have here is hewlett-packard saying this wasn't working before. we will show you something different, offer you two different companies. >> hp missed the wave of mobile computing. can they actually recover?
>> they didn't miss it cheaply. they made a huge acquisition, when it comes to palm, one of the initial leaders in mobile. they had their chances. one of the things this does is rearranges the deck. it changes the goal post. all year long, financial analysts have been asking meg whitman if the restructuring is more expensive, if you are laying off more and more people, how we meet financial targets? what will next you look like? she said wait until october, we never give guidance until the financial analyst meeting in october. we knew something big was going to happen today.
who knew it would be this massive cleavage of this business, right down the middle into two separate companies? >> meg whitman who will be running a much smaller company, did speak on a conference call this morning. she is much more positive about it than you are. >> the board and management team are convinced that by separating hp into two new companies, we accelerate the performance of both more rapidly than we could as currently configured. one hp was the right approach. during the fix and rebuild phase of the turnaround plan, we used the strength found in being together to become stronger throughout. >> for more on hp's split, and whether these two businesses will be stronger on their own, we are joined by crawford del prete via skype. and here with me in the studio, senior analyst from robert w baird. are they stronger? >> better apart. these are two different businesses with very different
business models. they have different r&d, even the end market is different in that hp inc is exposed to consumers, enterprises entirely corporate. i like them apart. the companies can better focus on what they do best. >> crawford, is this better from a product perspective? or is this a deal for shareholders? >> when you look at the innovations, hp labs will actually be going with hp enterprise. what you find is that that is the engine that enterprise will continue to focus on. hp inc will take enough money to do that going forward. from product standpoint, i think you will see a lot more innovation on the hp enterprise side. the other side will be new consumer and commercial offerings.
i think that will be much more organic going forward. >> we saw ebay spinning off paypal, planning to spin off paypal in the coming year. another big tech companies splitting in two. dell says they will continue to provide an end-to-end decision. they said is a complex decision, and appears to benefit shareholders rather than customers, which is ultimately the wrong priority. is dell in a better position than hp? >> perhaps. meg whitman says the company has been stronger because of these two businesses together. i don't know what stronger remains. revenues are less. profits are less. they have 50,000 fewer employees. tens of thousands more people
are going to lose their job. i don't know that statement means when you look at the numbers. it doesn't look stronger to me. when you look to what they are doing, i think the model is not the recent example of ebay/paypal. rather it's the model that took place in palo alto. when hp said we are going to cut the company in two, and spin off this separate company, which they did right there in 1999, in one of the biggest ipos ever. it kept hewlett-packard focus on pcs. we can look at the results of that from what they have split off, has an arguably better than what they kept. these are the issues they are looking at, with a lot of acquisitions that haven't gone well, and other things haven't gone well.
>> when it comes to mobile, and the fact that hp missed that experience, can they recover? can they catch up? >> it depends on what you define as mobile. in the laptop and tablet market, they can make some progress. in the mobile phone space, not really. keep in mind, hp inc. is mostly prints. three quarters of its operative profit is print. they will pay a nice dividend. on the enterprise side, that is where they need to invest. they need to drive new product innovation. they're competing against cisco, ibm, oracle, they really need to step it up on the innovation side. take advantage of the breadth the company has. >> jayson noland, crawford del prete, brendan iribe, cory johnson, we continue this after the break. we take a closer look at meg
i'm emily chang. this is "bloomberg west." we return to the top story, hewlett-packard splitting into two different companies. why did meg whitman change her mind? joining us is cory johnson, jayson noland, and crawford del prete from boston. i start with you. has meg whitman been good or bad for hp? >> given the situation meg walked into, she has done an excellent job of steadying the ship, structuring things in a way that needed to be structured.
she gets very little credit for changing the relationship with the channel. she incented the channel in a way they needed to be incented. >> what do you think? good or bad? >> i agree, meg has been good for this company. she offered stability to the employee base, to the company, to the channel. this is the next step in her big comeback with hp. it is not over yet. there are going to be concerns with customers, employees, and partners with the split of hp inc. and hewlett-packard
enterprise. the job is not done. but she is doing a good job. >> at ebay, she was all about consumers. at hp, focusing both on enterprise and consumer. now she is focusing exclusively on enterprise. what do you see her future running this enterprise business? >> they have a point about things they do behind the scenes to keep things from getting worse. the numbers don't lie. what you see is year after year of revenue decline. now flat revenue. now she is saying in 2015, we will be flat. she used the word positive when she said the number will be flat. that is a strange word choice, when numbers are flat. regardless, the numbers show with the numbers are. this is a tough business. it is not just because of pcs. the most is using thing about hewlett-packard is the least interesting thing. selling ink and paper has accounted for tons of cash flow.
it has let them try these other things. by spinning that off, they will have to make the enterprise business work on its own. i got an e-mail from an investor who is watching our commentary, saying they are sending compact one way, and the other new business will be called eds. it's really those acquisitions that are driving these two companies. they are old concepts that a been around for a while. >> hp bought compaq under the previous ceo. crawford, meg said that m&a will ramp up under her. what do you think she will buy? why is buying really the answer, when we have seen so many acquisitions at hp go wrong? >> when you look at what they are going to do on the enterprise side, i believe they will become more active in acquisitions. to be fair, she made a big bet with three par. that has been a good acquisition. expensive, but it allowed them
to decline a lot less quickly on the enterprise side. i think they will look to cloud acquisition. i think they will look to security acquisitions. they may look at storage acquisition going forward, in terms of areas where they will invest. why? that's the fastest way to show growth. last quarter, why did the company start growing again? pc's came back. they need to get the core enterprise business going. >> crawford, pc's came back because support was ending the quarter. she said it was a one-time, saying it wouldn't happen again. the company flat out said we have this one-time boost in pc sales because of the end of xp service, not because the business is getting better. >> cory, you are right. but our data suggest it has a longer tail than that.
but your point is correct. i think the question is how long can pc's show disproportionate growth? we think it is a more steady market. it argues for the time is now. the future may not look that great, going forward. >> crawford del prete, cory johnson at hp headquarters, and jayson noland, thank you all. we continue to cover this story after a quick break. how will the decision to split impact meg's pay? that and more when "bloomberg west" returns. ♪
west." i'm emily chang. today we follow the separation of 75-year-old hewlett-packard into two different companies. meg whitman will run the corporate software and hardware focused hp enterprise, dion weisler becomes ceo of hp inc. restructuring costs boom. how these plans impact executive pay? cory johnson is in palo alto. cory, what does this mean for what they get in the bank? >> fundamentally, it could mean more money. we take a look at how this works. i prepared this piece before the news today. as the restructuring is longer, as layoffs get bigger, it is possible that some executive pay
packages get even bigger. check it out. hewlett-packard announced its one-time structuring might take more time, with more costs and more layoffs. it could all help ceo meg whitman make more. the restructuring costs estimated $3.6 billion in 2012 has ballooned to $4.1 billion. 29,000 layoffs will hit 50,000. but what is restructuring? let's take a look at business as usual, structuring. that's the cost of building a business. you have a new idea, you hire someone to build it. but maybe it becomes obsolete, maybe it is stale. you shut down the project, you lay off the someone. that is business. the restructuring, when a company restructures, it is assuming that the shutting down the project and the laying off of someone is only one time, it doesn't count. sales go up here, costs leave a non-gap profit.
but restructuring goes down here. that's the bottom line, with the shareholders get. but the non-gap profit is unaffected. the more costs you move from here to down here, the bigger the adjusted profit. then there is the bonus question. in last three years, meg whitman has received $50 million from hewlett-packard, a $4 million bonus last year. hewlett-packard has seen 11 quarters of shrinking sales. see net profits fall, including $12 billion in the next fiscal year. restructuring will cost 50,000 people their jobs. so how did a company seeking to cut costs raise bonuses? buried in their filing, there is a quarter of the annual incentive plan is based on bottom-line financial performance. the bottom line is defined as this -- non gap profits. not the bottom line. so the more costs she can move
from here down to here, the bigger the non-gap profit. and the bigger bonus. and yes, the bigger the layoff, the bigger her potential pay package. to be sure, there are other factors that contribute. and until that business revival happens, with every restructure, it improves the structure of the ceos pay package. so again, the restructuring is now $4.7 billion. the layoffs are 55,000 people. a lot of them here in palo alto. the trend continues. it could very well help meg whitman make even more money for herself. >> we will watch to see if hp has anything to say on the executive pay. cory johnson, our editor at large at hp headquarters in palo alto. thank you. up next, what has oculus vr been up to since being bought by facebook earlier this year? we have their ceo, brendan iribe, with us next.
♪ bloomberg television on the markets. here is how u.s. stocks closed on this monday. , the stocksfell cannot not hold onto their morning gains. small caps led the way down. to 15.5 on this monday afternoon. let's take a look at a couple of individual movers. you let packard closing up -- hewlett-packard closing up almost 5%. personal computers and printers will make up one business. outdoors, neutral from overweight.
>> you are watching bloomberg west where we focus on innovation, technology, and the future of business. i am my chang. oculus vr has been making bigger waves in the virtual reality business. they have turned samsung's next note into a virtual reality device. our guest joins me in the studio. i want to talk to you about this donation. why are you [inaudible]
>> i did get what i wanted which was establishing relationships and these great memories. i lived on campus or next to campus for while and started a company freshman year with somebody else and he and i worked together for 15 years. he is one of the cofounders of oculus. coming out of maryland for me i got a business relationship and many personal relationships that have lasted my whole life. >> in terms of coursework come a what would you like to see them teach especially when it comes to virtual reality so that people who go there can get more out of it? >> this is a unique time when we see the beginning of a new computing platform. being able to be at the beginning and make this a center that is dedicated or has a big focus on virtual reality,
robotics, computer vision and being able to participate in that program and that center and help students get excited about this, come and speak frequently and support them on facilities and equipment and the lab and the recruiting faculty, it will be exciting to do that at the same time this whole new industry is taking off. >> virtual reality is here. it is not here yet. everyone is trying to understand what this is mean for me? how will virtual reality be integrated into my life? you think he will be bigger than pcs. what do you mean? >> it will take a while. i think one thing everyone gets excited about is the holodeck. we have seen this in tv shows. people need to reset their expectations. just like pcs and mobile devices, it took a decade or two
to get to the iphone. it took a long time for that platform to mature in the mobile space. virtual reality will take a while to mature. it will start out with a bigger ski goggle formfactor like the oculus. over time, it will get closer to sunglasses or a formfactor that is easier to the average person to adopt and enjoy. we are at the very beginning of virtual reality finally working for the first time, being comfortable, not making anyone sick. they will take a while to get to that formfactor the hundreds of millions of people will use. >> google glass hasn't taken off from a consumer perspective. why would this be different? >> is a different experience. google glass is a notification reality, in the corner of your eye you are getting your cell phone feed or updates from your text messages. this is replacing human vision. that is a fundamental difference. replacing human vision opens up new doors. things like face-to-face
communication, where you are in a different place than i am, that is something we have all imagined. that is some thing that will ultimately disrupt medication, or bring a new form of communication, that is some degree the holy grail. you can talk to someone as if you are right in front of them. >> this looks like a very antisocial product. but facebook felt differently. this could be an eminently social products. what does it mean for us in our daily lives, how does it augment rather than take away from our relationships? >> when people see a new computing platform, whether it was the personal computing in the beginning. there were nerds like myself in closets programming. they thought it was antisocial. now i would say computers are social platforms, like mobile is very much a social platform. virtual reality will ultimately be a very social platform. it will be largely around face-to-face communication. gaming and entertainment will be a big part of this.
that will be where it all begins. over time, as it expands, it will expand in education and other industries. especially communications. you can't get face-to-face communications and any other platform that we know of, besides virtual reality. >> facebook just closed its vision of whatsapp. any idea of how you will work together? >> is a messaging application. it's one of those services that has the potential to get to one billion people. those services are incredibly valuable. that is some thing that attracted us to the partnership with facebook. we want to get one billion people in the our. -- in vr. it will set out with a small market in the beginning, and expand over time. virtual reality entirely will expand, up to one billion users all connected, and hopefully,
virtually talking to each other. >> i was the partnership with samsung going? >> great. they are one of the leading hardware companies in the world. certainly one of the biggest mobile companies in the world. partnering with them, and try to connect more people in virtual reality -- it is hard to pick a better partner than samsung. it has been exciting working with them. there are challenges. any two companies coming together to build a product together -- we are the software, they are the hardware -- that is always going to be a challenge. they have been receptive to what needs to be done. john carmack, the legendary programmer, has really gone in under the hood and made a lot of modifications. he has openly talked about those modifications, samsung accepted
them, worked with us, to then deploy that to users. >> who also you partnered with? sony has their own headset. do you consider them a competitor? the virtual reality space needs more the one company. we hope it is an incredible industry that explodes. there will be hardware companies, software companies. we are excited to see what sony creates. we are focusing on samsung, and we want to get it right. that is our focus today, getting it right with samsung. >> what about hollywood? what have your conversations been with the entertainment companies? >> hollywood is getting excited. being based in orange county, we are close to l.a. we have been in touch with a number of directors and actors, -- keanu reeves came down recently. for many of us in the company, the matrix was exciting. it's need to have that connection to l.a. and hollywood.
a lot of the film producers are looking at -- is this going to be the next generation of real-time cinema? where you feel like you are in the movie? when you experience how good it can be, watching film on traditional 2-d screens start to be less compelling when you can be in the movie itself. >> how long before we see something i can buy -- an oculus headset on the market? do you have concerns that facebook hasn't marketed hardware before? >> we want to get it right. vr hasn't gotten it right the last 30 or 40 years. you put it on, it is disorienting, it has issues. it hasn't been a consumer usable device or technology. we want to get there. we want to make sure that when you do buy an oculus in the future, it is a comfortable
experience. whether it is the oculus rift, or an oculus running on gear vr. we wanted to be comfortable. it will be the ski goggle formfactor in the beginning. it won't be sunglasses for a while. but we wanted to be comfortable. you can spend an hour in there, and we wanted to be an enjoyable experience. something you want to come back to into every day, or multiple times a day. to get that right is really a big challenge. we are just at the point where it won't be sunglasses for a while. but we wanted to be comfortable. you can spend an hour in there, we now are confident that we are there. and it will be not too far along. >> a few months, a year? >> less than multiple years. [laughter] we can't say where we are. more than a few months, less than a few years. pretty soon, but we want to get it right. >> oculus founder and ceo brendan iribe, thanks for joining us. excited to see where this goes. coming up, more of "bloomberg west," after this quick break. ♪
>> i'm emily chang. immigration reform is a hot button issue in washington and silicon valley. just days ago, president obama found to take executive action by years end. how exactly are federal agents protecting the border now? technology is playing a vital role in law enforcement. drones, radar, and heat sensors are all part of the operation. matt miller went to the us-mexico border with homeland security to check it out. >> military style drones. surveillance towers. night vision goggles. >> now we are in business. >> securing nearly 2000 miles along the us-mexico border is an enormous task, combining if a structure, manpower, and now, technology. >> this is where the predator comes in handy.
you can watch them, tell them where they are. we have cameras that do the same thing i'm a from a lower level. >> it is homeland security's virtual border protection system. groups being tracked in real-time across the open does are in southern arizona, remote and rugged terrain. >> this was a group of smugglers a remote camera had tracked them. border patrol came out here. >> how long have you been in the desert? >> 10 days. >> 120 foot steel towers come outfitted with sensors that allow border patrol agent's to detect and record the movements of smugglers. radar and cameras are mounted to detect, track, and identify those crossing the border. towers monitor the area lined
with massive fences. >> typically these larger fences can range from 18 to 26 feet, are found closer to the city's, where you have seconds or minutes to make that apprehension. with the added technology, with cameras and whatnot, in addition to the fences, it allows an agent the time to respond. >> data from the border surveillance post is then wirelessly routed to the central control room. >> we have radar that will tell us what aircraft are in the air, crossing the border. we have camera feeds from the ports and the station. >> high quality long-range cameras with night observation systems that have thermal imagers. >> it's the same wavelength as your tv remote control. >> is infrared, so does enjoy when your eyes. >> that's mexico. >> iser and this guy, too, as predator drone's full ie 2000 feet.
>> are drone flies along the border. it can stay in the air for a long amount of time. >> at the end of the day, does the technology work, and is it worth the huge price? >> there is an adversarial relationship. are they escorting us, are we escorting them? we be better with 10,000 more helicopters, but that wouldn't be cost-effective. >> it's hard to gauge. we don't tell what we don't know. we don't know how many folks are crossing. all we know with the ones we catch. >> matt miller. >> joining me now, matt miller. matt, when it comes to using technology to track illegal activity, what has been the most impressive use of technology? >> to me, the most impressive or unbelievable technology was the towers that hold cameras and sensors that can see out 10 or 15 miles.
they detect movements that are an animal, or a person, and then reported back to the central headquarters where they check it out with actual troops on the ground of or helicopters in the air. i couldn't believe they have cameras the go out that far and detect movement. in a lot of these people are jumping over, climbing over these fences. and then moving very swiftly under nightfall, wearing camouflage. they have special booties on to cover up footprints. it is difficult to see them with the human eye. but the sensors and infrared cameras make it easier. >> matt miller, fascinating. we appreciate it. i want to get a check of other stories make the headlines now with mark crumpton in new york. >> the u.s. supreme court refuses to wait into the same-sex marriage debate, at least for now.
in a surprise move, justices declined to hear cases involving same-sex marriage. the decision leaves lower court rulings in place that will legalize same-sex marriage in 11 additional states. when u.s. airman was killed, two others are missing after a typhoon washed them out to see in japan. the airmen were stationed at a base in okinawa. meanwhile, the typhoon is heading out to see after lashing tokyo with heavy rain and wind. disney and time warner have agreed to a new nine-year television contract to carry nba games. the two media companies are paying the nba $4 billion for the rights, about three times the current contract price. the nba package is seen as key to time warner's turnaround plan for its turner broadcasting division. emily? >> what is coming up on "bottom line,"? >> were talking the secretary of
west." i'm emily chang. facebook is now the official owner of whatsapp. it closed after it won an antitrust clearance from eu regulators. in a statement, the two companies said, we are looking forward to connecting even more people around the world and continuing to create. you for the people who use whatsapp. the co will be joining facebook's board. it is time for the bwest byte. ground at hpe headquarters. it is hp related. this is one of the weirdest ever. hp has done a lot of acquisitions. since the acquisition, they have
done 55 acquisitions. they have only given us the price up 20 of those. we will call it $39 billion in acquisition costs since the deal. how much revenues increased the prior year? the increase in revenues -- 39 billion. almost dollar for dollar what they spent. that business has not grown. >> it is interesting, so many people say that big acquisitions don't work. they take a lot of time. why do companies keep doing them? >> you can understand a company wants to use the cash it has built up. those acquisitions have worked out.
they talk about the torture of working here in palo alto. a lot of acquisitions happen because companies want to go to where the exciting thing is. at hewlett-packard, time and time again, that has proven to be a difficult course of action. >> how long do you think the split will take to play out? can't these splits, in reality, take years? >> the split -- back in 1999, hewlett-packard split in half. they did it similar to this. the issued shares through existing shareholders, and did an ipo to raise cash. that is not the current plan for the split. but that's what led to two different companies, and a very different history. today, the blowout -- people don't think about agile and.
just because the name was changed. keeping the hp inc. and hewlett-packard enterprises name mean people will look back to those two businesses and look at what it -- that would could have been. >> cory johnson, live at hp headquarters in palo alto. thank you for watching this edition of "bloomberg west." you can watch us streaming on your tablet, phone, bloomberg.com and bloomberg radio. we will see you later. ♪
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