tv Bloomberg West Bloomberg October 6, 2014 1:00pm-2:01pm 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. ahead on bloomberg west this hour, hewlett-packard is the latest tech giant to decide to break apart. hp will split into two separate companies, one focused on pcs and printers, the other on enterprise software and hardware. we look into how the breakup could affect the future of the silicon valley pioneer. it has been a big year for oculus, since facebook. the virtual-reality company for $2 billion. oculus just announced a new partnership with samsung, and revealed a new prototype of a
virtual-reality headset. talkan iribe stopped by to about it all, and his major donation to a virtual-reality lab. it has been full speed ahead for self driving cars. tesla is expected to unveil an auto drive feature later this week. mercedes to honda have also been testing out the technology. we look and how long will be before self driving cars actually hit the car market. first, to our lead. ofis taking a page out ebay's book, and splitting into two separate companies. pioneer, whoalley has been heard in the downturn in the pc business and some bad acquisitions, says the move will allow it to better adapt to changing technologies and generate more shareholder value. , who just three years ago said a split wasn't in the company's best interest, will become ceo of hp enterprise , which is focused on corporate hardware, software, and services. -- dion willcome
become ceo of hp anchor. -- ink. will land at $55,000 -- 55,000. corey, 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 a decision she rescinded, and took the thing off the block.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 them. 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 off. 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 sheila packard enterprises. you have a pile of businesses -- 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 sheila packard saying -- saying thisard wasn't working before. we will show you something different, offer you two dife
ferent 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? october, wet until never give guidance until the financial is 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 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 two new -- into companies come up 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. split, and on hp's whether these two businesses will be stronger on their own, we are joined by crawford del prete via skype. studio, with me in the senior analyst from robert debbie 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 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 profit perspective? or is this a deal for shareholders? >> when you look at the innovations, hp labs will actually be going with hp enterprise. that is find is that the engine that enterprise will continue to focus on. hpinc. will take their -- inc will take enough money to do that going forward. from product standpoint, i think you will see a lot more invasion on the hp enterprise aside -- innovation on the hb enterprise
side. be newer side will consumer and commercial offerings. i think that will be much more organic going forward. spinning offy paypal, planning to spin off paypal in the coming year. another big tech companies splitting in two. dell says they will continue to ride -- provide an end-to-end decision. 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 or 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. me 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, and one of the biggest ipos ever. 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. issues they are looking at, with a lot of acquisitions that haven't gone 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. is mostlynd, hp inc. prints. three quarters of its operated profit -- operative profit is print. they will pay an iced dividend. -- a nice dividend. on the enterprise side, that is where they need to invest. within two to drive new product innovation. they're competing against cisco, ibm, oracle, they really need to step it up on the ovation side. breadthantage of the the company has. crawford deland, , cory brendan iribe
i'm emily chang. this is "bloomberg west." we returned to the top story, hewlett-packard splitting into two different companies. why did make about -- 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 that in -- in a way that needed to be structured. she gets very little credit for changing the relationship with the channel. she invented the channel and away they needed to be -- and channel in a way they needed to be incented. >> what do you think? good or bad? has been goodg 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. -- focusing both on enterprise and consumer. now she is focusing exclusively on enterprise. what do you see her future running this at a price business? -- 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 as 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 trial these other things. by spinning that off, they will have to make the enterprise business work on its own. investore-mail from an 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. under theht compaq previous ceo. crawford, meg said that m&a will ramp up under her. what do 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. pc's came back because you support was ending the quarter. she said it was a one-time, saying it wouldn't happen again. we company flat out said 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. coryawford del prete, 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. ♪
>> welcome back to "bloomberg west." i'm emily chang. today we follow the separation of 75-year-old hewlett-packard into two different companies. run theman will corporate software and hardware focused hp enterprise, and he 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-timer 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. 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. 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. costs leave are, 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. no 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 tracking 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 note -- a quarter of for annual incentive plan is based on bottom-line financial performance. the bottom line is defined as this -- none get profits. not the bottom line. so the more costs she can move from here down to hear, 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 contractors that contribute. 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. beenxt, what has oculus vr up to since being bought by facebook earlier this year? we have their ceo, brendan iribe , with us next. ♪ >> it's 26 minutes after the hour, which means bloomberg is on the markets. i'm scarlet fu. let's get you a check on today's stock market action. we have been s&p 500, dow, and nasdaq moving up a little bit. still down, but not by much. 1.8 points for the s&p. is up bybrazil index almost 7%. the best gain in four years. gold prices at session highs.
>> you are watching "bloomberg west," where we focus on innovation, technology, and the future of business. recentfacebook's acquisitions, oculus the are, has been making waves. the company recently announced a partnership with samsung to create the gear the our, starting -- essentially turning the next note into avr device. they were donated $31 million to build a virtual reality lab at the university of maryland. he joins me now in the studio. i want to talk to about the
start nation. obvious the, you didn't get what you wanted out of college. why are you giving them this money? >> i do get what i wanted. that was establishing relationship and great memories. i actually lived on campus, right next to campus, for quite a while. i started a company freshman year with somebody else on campus. we worked together for 15 years. he is one of the cofounders of oculus. he also donated back to the university of maryland. 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, what would you like to see them teach? especially when it comes to virtual reality, so the people who go there and get more out of it? >> this is a unique time it. we see the beginning of an entirely new computing platform. it's like the beginning of personal computers, and being able to be at the beginning of virtual reality, and make the start nation to set up a center that is dedicated or has a big focus on virtual reality,
robotics, computer vision. and be able to purchase paid in that center, and help students get excited about this. in that center, and help students get excited about this. support them on equipment, and design, and the recruit of faculty -- it is really exciting to do that. at the same time this whole new industry is taking off. >> virtual reality is virtually 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 holiday -- holodeck. we have seen this in tv shows. people need to reset their expectations. devicese pcs and mobile
, 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. closer to it will get 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. willis some thing that 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. our does it mean for us in 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. myself in nerds like closets programming. they thought it was antisocial. now i would say computers are social platforms, like mobile is very much a social platform. 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. itsacebook just closed 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 users, up to one billion
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. and try towith them, 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. carmack, the legendary programmer, has really gone in under the hood and made a lot of modifications. those openly talked about 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? kuznetsova. the virtual reality space needs more the one company. incredibleis an 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, yada reeves came down recently -- keanu reeves came down recently. of us in the country
-- in the kumbaya, 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 -- and oculus headset on the market? do you have concerns that facebook hasn't marketed hardware before? >> we want to get it right. right thegotten it 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 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. 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. toar and cameras are mounted 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 limiters. .- 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? 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. >> match miller -- 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. are detect movements that 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. haveldn't believe they 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 ple 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 commerce. we discussed the trade deficit with china, the recent fact-finding trip to poland and turkey, and the geopolitical climate affecting trade decisions. that and more when i see with the top of the hour. back to you. >> mark crumpton, see you in a few minutes. while fully self driving cars could take 10 years or more to make it to market, many automakers are looking to roll out semiautonomous features in their upcoming models, including tesla. we are back with that, next. ♪
features that will keep a car in its lane at events on thursday. are these becoming a new standard in the auto world, and how far away are we from completely autonomous vehicles? john leonard joins me now with more the a skype. what do you think tesla is going to announce this week? >> my understanding is that tesla's partner with mobile [inaudible] for the summer, going much higher than any predictions. [inaudible] enablell use cameras to a form of autopilot, so that the car can have adaptive cruise control using a radar out the front of the car. this will partially automated highway driving. >> john, we are having trouble hearing you. some technical difficulties. we will have to leave it there,
we will try to catch up with you later. i want to get to cory johnson, again at hb headquarters in palo alto -- hp headquarters in palo alto. cory, time for the bwest byte. what do have for us? >> it is hp related. this is one of the weirdest byte s ever. lot ofdone a acquisitions, not including the toy $5 billion acquisition of compaq. 55 acquisitions, they've only given us the price of 20 of those. they cost the company .9,138,000,000, 100 $38,000 , did revenues increase? they spent $39 billion in acquisitions. almost dollar for dollar what they spent is the increase in
revenue they have had. fundamentally, the business has outgrown. -- not grown up. >> so many people say that big acquisitions don't work. why to come please keep doing them? -- companies keep doing them? understand why a company wants to use cash they have stored up, and then acquire great innovation happening. certainly, some of those acquisitions have worked out. marc andreessen and ben horowitz made a lot of coin selling their business to hewlett-packard. they talk about the torture of working here in palo alto for hewlett-packard afterwards. happent of acquisitions 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? -- 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. anding the hp inc. 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, apple tv, and amazon fire tv. we will see later. ♪
thehis is "bottom line," intersection of business and economics with a mainstream perspective. today, the brazilian president will face a pro-business candidate in a runoff next month. then, the u.s. supreme court rejects calls on a nationwide ruling on same-sex marriage. chipotle takes a slice of the pizza market. ♪ to our viewers here in the united states, and for those of you joining us from around the world, welcome.