tv Bloomberg West Bloomberg March 21, 2016 11:00pm-12:01am EDT
mark: you are watching bloomberg "west." let's begin with a check of your first word news. president obama since the united states and cuba are at the precipice of what he calls an historic opportunity. he made his comments on a joint press conference and have an with cuban president raul castro. >> the relationship between our governments will not be transformed overnight. we continue, as president castro indicated, to have some very serious differences, including on democracy and human rights. mark: president castro said recent u.s. moves to ease restrictions are positive, but insufficient. they havelice say identified another suspect in
the paris terror attacks. officials say his dna was found in a house used by the terrorists. first alleged shooter was arrested friday in brussels after a four-month manhunt. e fda is looking to ban gloves made with powder designed to make them easier to wear, which can cause health problems for some. most have already been phased out; only six manufacturers are still making the gloves in the u.s. says they are looking at hosting a regular-season game in china as early as 2018. the league says several teams are willing to go. global news, 24 hours a day, powered by 2400 journalists in 150 news bureaus around the world. i'm mark crumpton. ♪
emily: i am emily chang, and this is "bloomberg west." apple versus the fbi after tim cook's latest remarks, and twitter turns 10 years old. we look at what the next 10 years may hold. first, to our lead. apple unveiling their new iphone, the se, in cupertino, starting out at $399, the cheapest iphone ever, appealing to loyal customers and potential upgraders, also high-growth markets, like china and india. investors not initially crazy about it. but i do want to point out that investors are sometimes slow to digest apple product announcements. looking back since steve jobs
died, shares on average rose 1.5% after product launches but retreated by 1.8% three months after those dates. what about today's news? i want to bring in a senior research analyst. and in the studio, we have an analyst and another, and then our bloomberg editor at large, cory johnson. so, cory, i will start with you since you have had a few hours to do just the news. what are your big takeaways? cory: rather than go big or go home, and they won a championship in doing that, and apple is doing the same thing. the 30 million people, that was a shocking number.
30 million people bought an iphone 5, and they recognized they have customers who want to use small phones, and they gave them a better smaller phone, and they lowered the price, so a very interesting embrace of these customers, but i look at it as infill rather than creating new markets. emily: what do you think, gene? gene: i think investors are already concerned about this, so that is already priced in. they are being slightly more aggressive, it may be appropriately aggressive, so this is a great price point, because it will be more attractive.
at the same time, it will not be at the cost of their margins, so i think investors should feel good about this. the second piece is that the large guidance they gave, many investors believe that included the phone. there quarter ends on march 26, and what that means is that the march quarter does not benefit, so one of the takeaways is they should feel a little bit better about the guidance based about the timing of when this phone is available. emily: this is the lowest priced iphone ever. will this help invigorate their sales? >> let's be clear. there is one billion devices out there. we are looking at a huge audience that is going to expand, perhaps slower than we are used to, but one billion people potentially are using
apple devices. now, how much faster can they grow? how many more users are non-consumers of iphones? there are billions of people on the planet. many will have iphones. they are just going to keep improving this product. emily: who is going to buy this phone? is this people who have not upgraded yet? or the people who want a smaller screen? who are they targeting? >> i think we still see a portion of the base that has not moved yet. this is not always a price driven thing. 20% of the panel, for example, said they are not sure about the size. they will upgrade at some point,
but they like it small. the existing base, like the holdouts who are saying i am adamantly set -- maybe that is 10% or 15% of those owners, so i think the important thing that they are bringing the platform up to current technology, but i think they were very intentional in saying that the first time buyer typically buys in at this screen size, but if you look at indonesia and other places, this is the price point, so it is a maturing middle. consumers, where it is not their first phone. an android phone. those drawn to apple, they are willing to pay a little bit more, and they are meeting them there in this mid tier price range. emily: gene, swimming against the tide. a slowdown in china, and the smart phone market is quickly
saturating in some places. at what point is this outside apple's control? gene: some of it is. in china, in the december quarter, it grew 18% year-to-year, a big deceleration from where it was in september, but it was better than another number that was near 10%. everyone is up against a headwind. it should be a mid to high single digit business for them for the next years. even with those headwinds, this should be a growing business. emily: we are seeing a new iphone, and a new watch, and they are lowering the price by
$50. what do you think? horace: the question is, what is that price on a per day races, and if you look at how long -- what is that price on a per day basis, and if you look at how long they have it -- i have worked on that model and refined it, and now it is coming to about $.70 per day, and we also saw what apple published. $17 for the lowest iphone and up to $31 for the high-end model. think about that. $30 a month versus a dollar a day. this is how i think we should think about these products and ask ourselves how many of those
customers there are and how many are, for example, going to add services on top of that, so we are looking at $10 or $20 per year for each device, so that you reduce it to how many users you have and how many -- how much is spent on each device -- emily: ben, nobody knows how well the watch is selling, and you guys are wearing them, and there are some people who do not wear them at all. can this be more than a niche product? ben: there are couple of ways to look at the watch product. there was nothing preceding it to give us a reference. the iphone, most of us had something. most of us were familiar with
the ios, and this product, i think it takes time. you see it in the mainstream markets, the everyday buyers who are finding value in the messaging and data. we are optimistic that this product does. the question is, again, how big is this market? we have this with all of the category products that come out, from v.r. and other. the research suggests that there is certainly something there. how big that goes is the debate. making some sense, to unbundle it from the iphone, improve it -- those will, as the category matures. what we are seeing in the market is just positive it -- just positive. emily: cory, i went to send it out to you, because you spend a
lot of time on your apple -- i want to send it out to you, because you spent a lot of time on your apple research. cory: you talk about bottom line, and to gene's point, the growth in china is kind of the whole story. it shows you really impressive growth into a new market that decelerating growth, so the only way for apple to get that growth, double digit, topline growth, we get to the saturation levels, you are not going to see -- just replacing the devices is not going to give you double digit growth. you have to have new devices and new -- so they can do that in emerging markets and beyond. emily: ok, cory johnson from the apple headquarters in cupertino.
and horace and ben, you guys are staying with me. and we are following the patent battle with samsung, and a court has agreed to hear the challenge to the award won by apple. a jury had found that they should turn over profits from their phone sales. in a statement, samsung says they welcomed the court decision to hear the case. we believe it will support creativity and reward innovation. apple had no comment on this latest. this has spanned the globe, engulfing every major smartphone maker and billions of dollars spent on patents. there is a nine-month term that starts in october. and still to come, we ask about
horace: it is very much off the charts. people consume them greatly, and they use them longer than what an iphone would last, so on the one hand, they are much loved. the idea of a smaller, faster ipad is a continuation of an existing story. this is not something that -- it is something that makes me jealous even though i have the largest ipad that you can buy. six months old. emily: you are one of the most fervent ipad fans out there. horace: i use mine a lot, and this makes me jealous, because i think i had the best. ben: one of the categories i
study is the pc industry, and as we know, that pc industry has not been doing great. there are 6 million devices that are five years old. i do not know if you have tried to use a five-year-old pc or even a four-year-old pc, but people are holding onto them. we watch this number grow, and now it is at 600, so you have to reason at some point in time, they are going to do something, so apple started saying the tablet that can replace your pc. we have all said you can replace your pc with your ipad get they had not been saying that, so now you see them targeting that.
you have not upgraded your pc, so we want you to consider this. i think that is an interesting part of the story, and that is really the nut they are going after. this idea there are 600 million old pc's out there. emily: a question investors and i think customers have is what is going to be the next big product? is it the apple tv? is it a car? is it owning the living room and doing something like the amazon alexa? gene: think about google glass, and the companies like google and samsung. sony. they have all been very vocal about what they are doing in this space. apple has been making some acquisitions and hiring people, but if you think about the
window, it is this mixed reality, different from virtual reality, but this is going to be a paradigm shift in computing. apple needs to nail this to keep the momentum growing, and i think this is the kind of thing that keeps tim cook up at night. emily: interesting. horace, quickly, because i want to talk about encryption before we go. horace: i am still optimistic that the watch has a growth story to it. the margins are good. what we are talking about is an important part of the growth story. it is not just a hardware play, but apple is involved in making money in different ways and not
just hardware, and that is a message they are putting out there. emily: tim cook on the world stage talking about this battle with the fbi. it was the first thing that he talked about. horace, we will start with you. will this impact the business? horace: you mentioned earlier the samsung lawsuit there. this is an ongoing thing. there is always going to be court battles, but what i will say is there are legs to the story. these are not topics you lead with typically. you lead with a huge, new product launch, and this is a side of apple where they lead with these topics, which most people say, oh, yes, it is just being a good boy, but it is far more important to leave a
legacy, and that is an interesting story. i do not know what to make of it as an analyst, but it is an interesting story. emily: horace, ben, and gene, i feel we have the best apple experts on our show today, so thank you so much for breaking it down for us. later on, we focus on apple and their battle with the fbi over encryption. that battle comes to a head tomorrow in riverside, california. details to come. ♪
>> we are not raising at this point. in fact, our last was over a billion dollars in 2014. it was a huge amount of power. we have been investing in companies and making some strategic investment. the business itself is operationally self-sufficient, so we really do not need to raise any more money beyond the round that we did, which was focused only on investments. reporter: how long can this last? hugo: the company can keep itself going operationally. we have been a profitable company for a long time. when you look at how much money we have raised and how heavy from a capital expenditure point of view is the smartphone is this, you know we have been a profitable company for a long time. reporter: last year, a little bit below expectation, and some
are saying that the $45 billion valuation is not sustainable. what would you say about that? hugo: looking at our china business, we were number one, number one for a second year in a row. it is not growing fast anymore, but we are maintaining our leadership position, and it is also a very competitive market. emily: speaking to our bloomberg news reporter, he went on to say that the u.s. is still on the company's radar. later, all eyes are on apple with the showdown with the fbi. when we return. ♪
rishaad: japanese shares gaining. dropping against u.s. dollar for a third day while oil remains above $31 per barrel. the recovery includes willingness to support global growth in central banks. carney calling a volatile start the training year. the u.s. government says it may not need apple's help to unlock the terrorist's iphone after all. they canceled the court hearing tomorrow. a third-party suggested a way to hack the phone. apple says it is an interesting twist which means it is no longer obliged to comply with any order.
, a new message app tops the ranking on apple devices after japan released it. nintendo is promising to bring hit games like super mario brothers to cell phones. 2400 journalists and 150 euros globally. let's get the latest on the market. here's david. david: thanks, rish. out with what is happening in nintendo, but let's get started with the other members across the region. oracle japan, the biggest mover to the upside on the msci. .5%, under ¥37 billion. the other side, if you have sino in hong kong, 48% drop in net
income, 21% drop in revenue shares, down 5.8%. as promised, nintendo will be here, but before i get to that, have a look at htc. apples back to this whole releasing the new iphone -- where does it get? nintendo shares are up almost 8%. shares are up, its new messaging app hitting one million users. they're developing a console game for smart. broader picture looks like this -- very much mixed. that's doing, and enough to lift the overall msci
to the highest level since january 1 of this year. elsewhere, we are seeing some weakness, the same picture we have seen across equity markets. things should improve as we move into the afternoon. ♪ emily: let's get back to our top story. apple unveiling a smaller, cheaper iphone. alongside other announcements at the cupertino headquarters. investors are taking time to digest the news. we look at how apple's stock is the doing -- is doing. >> we did not see any pop in share prices. investors were pretty un-wow'd by it. shares closed flat, down .01%. pretty much no movement whatsoever.
earlier in the day, it had been in positive territory. if you look at the intraday chart, when tim cook started talking, there was a slight blip down when he started talking about the apple and doj investigation. around 1:30 p.m. eastern time, you see the definite slide about 1.6%. that is after he talked about specs with the iphone se coming out. they tried to pare losses but they ended flat. looking at here today, apple share price has actually come back from its low that it hit in february, february 11 or so after analysts were fretting about what happened with iphone sales and the forecasts. but of course what is happening with the new iphone iteration, we could be seeing a lift up. but we haven't seen anything at all.
and we may not until the iphone seven comes out this fall. emily: in l.a. to cover the hearing tomorrow in riverside which we will be covering throughout the day. we will be hearing a lot from him. apples fight with the fbi as they head back to court on tuesday. both parties will face a judge. the judge has already ruled apple must do what the government is asking. the vice president and research director, bob o'donnell. the judge came out today setting some ground rules. what did she say? what are we expecting to happen tomorrow? >> the judge is expecting a lot of interest and some of the rules for how many people that can be in the courtroom. there is limited space and there will be an overflow room for people that want to watch. making sure she gets all of her
ducks in a row before the big day. emily: both sides have said they will take this all the way to the supreme court. a ruling could potentially come tomorrow. tim cook made this issue center stage and talked about it first off at the event today. take a look and listen to what tim cook had to say. tim cook: we did not expect to be in this position. at odds with our own government. we believe strongly that we have a responsibility to help you protect your data. and protect your privacy. we owe it to our customers, and we oh it to our country. this is an issue that impacts all of us, and we will not shrink from this responsibility. emily: the government has not backed down a single inch.
i sat down with loretta lynch. loretta lynch: we are not against strong encryption. our only concern is with warrant encryption. technology has changed so much in the last six months, two years, three years. we do not know what it's on the horizon. emily: meantime, guys, apple has gotten the entire tech industry to public side with them. the judge said it has gotten a lot of publicity. will this impact the ruling? >> i don't know that it will. what is fascinating watching this evolved is going from a tiny specific case about one phone and one version to a platform precedent-setting case. that is what you see the tech industry get behind apple. they recognize this is way bigger than apple. it is a defining moment for tim cook. he can really put his stamp on the leadership and what he wants
to do with apple. emily: every company as a data company. what are the broader implications of this? chris: apple has been putting the privacy stake in the ground the last years. they've made a part of their brand. if customers see them backing down, it will have an impact on apple's brand. if they see a company with apple, that kind of clout, if they lose, others will follow suit. emily: the new york times engineers have reported they will quit if this comes to pass. what happens if a judge orders the company to do this? what happens if apple engineers say, we refuse. tim: talk about complicating the matter. it gets to the rift we are seeing between silicon valley
and washington law enforcement. we saw it happen after edward snowden a few years ago. if these engineers walk off, it is a complicated place. apple is very silo'd, and there are questions about how long it will take to respond bringing in the backbenchers. emily: one guest this morning said this case has got the chilling effect where people are scared and they don't want to use technology so much. at the same time, it is a lot of publicity for apple. bob: i think it will improve the business because people are concerned about the privacy side of things. there is a certain group of people for whom this feels like somewhat of an antigovernment kind of move. there are some people in that group that are apple customers. the question is, what is the percentage on each side. i think, in the long run, it
will benefit apple but there will be some hits to it as well. emily: let's not being talked about right now? >> customers have a choice. they have a lot more data and what tech companies are doing with their data. if apple is not standing up for them and not filling their promises, they have other device manufacturers they can go to. they can encrypt their messages and photos through other services. the fact customers have that choice means apple has to stand up for that promise. otherwise, customers will switch sides. emily: what are we expecting tomorrow? we know a ruling is possible, but is it likely? tim: it would be unlikely for the judge to want to not consider both arguments.
this will be a statute that is more than 200 years old and apple saying that the founding fathers of the u.s. would be appalled by the government's use in this case. a lot of technical language and legalese. it will not be as clear cut as apple would like to do in the court of public opinion based on the idea of privacy as a new conversation. emily: tim hagans, our bloomberg news reporter. it we have news just crossing from politico. federal courts have moved to cancel this hearing tomorrow. have you heard anything about this? what happens if that happens? tim: this just happened. it is a fluid situation. we will have to see what the next step is. it is clear the two sides have been talking. trying to get a resolution outside of the court. emily: we are scheduled to be in riverside covering that hearing
all day tomorrow. it is something that we will keep our eye on. tim higgins joining us. chris mclean and bob mcdonnell joining us. thank you all. with president obama having touched down in cuba, the floodgates have opened for tech companies rushing to set up shop in the once walled off company. we got thoughts on the possibilities that cuba has to offer. >> cuba is the fastest-growing country in the world. it has been amazing. san francisco and cities took many years to get to this scale. i learned about something that has existed in the cuban culture. the idea of sharing your home predates airbnb. a lot of people describe cuba of
a place that is reminiscent of the past. i think it is a place we will look back on and say it was, in some ways, moving to the future. it sounds counterintuitive. what i mean is, it is an economy with home sharing, restaurants and living rooms -- it is a vibrant place that the united states will probably look more like. emily: airbnb ceo brian chesky. we caught up with dan schulman on his plans to expand in cuba. dan: we are working with cuban authorities and the u.s. treasury to try to expedite that. we expect it no later than by the end of this year, we will have service. hopefully sooner than that. emily: paypal ceo dan schulman. homeland seasons -- how many homeland seasons does showtime have planned? that is next. ♪
emily: in this weeks edition of studio 1.0, i sit down with showtimes ceo david nevins to ask about the large number of scripted shows coming to market and whether we are in a tv bubble. david: i don't think so. i think that there is -- you find this level. a bubble implies there will suddenly be a puncture and we are down 25%. i definitely do not see that. it is possible to not succeed. microsoft, yahoo! -- they went in and they went out. after a certain amount of investment, we don't have the
stomach for it. it's not for us. that said, it's robust. the demand is there. the desire is there. we are in expansion mode. i don't feel like we have too much. they say, give me another great show. emily: is it scary that anyone, even amazon can make a hit original show? david: anyone can make an original show but we don't know if it's a hit until someone is watching. emily: we don't know many people are watching but - david: it is a terrific show. i personally love transparent. it is scary? i think it is democratizing. it is good for the process and the business that keeps us on her toes.
we have to compete harder, better. we make us a creative home for creative people. i don't really have the instinct to keep out the competition. we are in the club so we will shut the door behind us. i don't think that is good for storytelling, good for creativity, good for the consumer. it's not. it's not how the world works. emily: what are your plans for international expansion? you made a deal with canada. you licensed your shows to sky. you want to sell showtime streaming to other countries? david: it has been a big push i have been making. there are shows that work in the u.k. and france compared to some of our competition. we made a big push starting in canada and the endless speaking international territories. germany, italy. we just did australia and europe.
the showtime brand is starting to mean something. rather than selling shows in a one-off way. dexter was over here and ray donovan is over here -- put them all together in the same network and it makes a big difference. it is a factor. emily: what about plans to sell the stream service independently? david: we haven't. we can. there are such big shows -- we will see what happens when these deals are done. emily: what about china? netflix is being asked all the time. david: billions would be great in china.
the subject matter, the conversations going on -- i hope that billions gets a real deal in china that is potential he our biggest deal ever. china is becoming a very real market for us. we are selling it for pennies now that there is real interest. millions is the real --billions is the first real major sale we've had. china has always been a terrible market for american television. piracy is so rampant. the movie studios figured out how to do stuff in china five years ago when they started to make real money.
i expect there to be real growth in the next five years. emily: showtimes ceo david nevins. it you can catch the full interview online. i do want to bring you the latest on a developing story. the u.s. government is seeking to delay the court hearing with apple scheduled for tomorrow. the government saying a third party has suggested a method to hack the phone in question without apple's help. tim higgins will be joining us again. ♪
tim: the government saying an outside party advised the fbi about this method and the fbi needs time to test it to see if they can get this to unlock without damaging any of the data. asking the court to cancel the hearing tomorrow and check back in in april. if they are able to get into this phone, they do not need to force apple to help them. emily: wouldn't the government have tried all other avenues before taking this route with apple? and as soon as this case initially was brought up, there were security experts say and that there are other ways to do this. what do you make of that? tim: this is one of the key points apple has been hitting hard with rebuttals to the government. they felt the government had not pursued all options and had not proven that they needed to force apple into this position.
it is something we heard from lawmakers when the broader issue went before congress earlier in march. emily: how much time is the government asking for? how much will this delay the process? tim: the government is asking for a status report on april 5. emily: april 5. then what happens? tim: then we will find out if the government is successful in using this outside method of breaking the phone or not. emily: tim higgins joining us from washington again. the government has asked to delay the hearing scheduled in riverside tomorrow where apple and the fbi were scheduled to present their arguments to a judge. the government now asking for that hearing to be delayed. we will continue to follow that story. it is now time to find out who is having the best day ever. today it is jack dorsey.