Apple and IBM Team Up: Bloomberg West (07/15)

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July 15 (Bloomberg) -- Full episode of "Bloomberg West." Guests: JMP's Alex Gauna and Founders Fund's Geoff Lewis. (Source: Bloomberg)

Live from pier three in san francisco, this is "bloomberg west" where we cover innovation, technology, and the future of business.

Ahead this hour, apple to work with ibm to create business software applications for iphone and ipad users according to a statement.

It will be tailored to work with ibm data analytics and cloud services.

Ibm will sell apple to its customers and apple will offer customer service for the apps.

Ford ceo alan mulally joining google's there's. he was appointed july 9 and will serve on the google audit committee.

The former auto executive engineered a turnaround at the auto maker by globalizing models, cutting costs, boosting technology.

It is unclear if he will play some role in the self driving car program.

Yahoo!

Will return cash to shareholders when it sells stake in alibaba.

They will use at least half of any proceeds from the sale to fund the project.

Yahoo!

Reported quarterly earnings showing the company still struggling to deliver growth while contending with properly or -- popular rivals.

They will sell 148 million shares down from the originally planned 208 million.

Now to the lead story of the day, apple and ibm burying their past rivalry.

They will develop apps for the apple iphone and ipad tailored to work with ibm data analytics and cloud services.

Ibm will sell apple products directly to business clients and apple in turn offers apps support.

This will help them expand into the enterprise of market -- enterprise market.

Helping them stay relevant in an increasingly mobile environment.

I'm a to bring in "bloomberg west" editor-at-large cory johnson and senior analyst from jmp securities.

Obviously, these companies have been bitter rivals for a long time.

Why not put the rivalry to rest, alex?

Not bitter if you think about where ibm came from.

What are you talking about?

Once upon a time they were chipset collaborators.

The battle lines are being drawn.

Very powerful distinction between consumer and enterprise learning -- blurring in a b.y.o.d. world.

It is a very powerful combination.

I get it.

We know ibm server sales have been in trouble.

They have been amazon rival in cloud.

We have to see exactly where this partnership goes but on the surface, i like it.

Who gets more out of this, ibm or apple?

You say apple has already penetrated the enterprise market.

To an extent, but you and i were talking earlier about the slowdown in tablet sales.

It's a slowing of apple growth.

Apple continues to dominate in all markets, but we see this in an ad hoc way.

Most corporations by technology through their corporate i.t. department often with the help of companies like hewlett-packard and, yes, like ibm, the most dominant company in all of the technology will services company.

Services did $59 billion selling stuff and how to implement it.

This announcement was all about apps, apps, apps.

The news is you will have every single person in the ibm sales force will walk into the customer accounts with ipads and iphones available for corporate development, distribution, deployment as well as developing ibm maps on these devices that are favored by u.s. consumers.

We saw a lot of competition coming from android in the corporate market.

Success of the windows phone taking the lace of blackberry, really bad news for blackberry and probably bad news for microsoft and android.

That was going to be my next question.

What does it mean for the others -- blackberry, google, microsoft?

He's right.

This makes apple much more powerful in an enterprise sense and it goes beyond blackberry, in my view already a dead man walking.

Amazon, google, competing for the soul of the enterprise.

I'm not sure that it is all one-sided here.

Ibm had been struggling.

This is a very clear strategic alignment and they can use apple and could be a big deal.

Alliances like this sound great but often they do not yield much of anything in terms of results.

If you are an ibm salesperson and you walk into a customer account and you say, you don't like the blackberry, i have a windows phone for you?

That is a hard sell.

The ibm guys will benefit.

It's a company that has tremendous struggles, shrinking revenues six quarters in a row.

Six or eight quarters in a row?

You also have a company that has managed to massage earnings per share but not really seeing improving operating results on a significant basis despite spending billions and acquisitions.

Ibm needs help badly.

Having better products to sell can only help.

Alex, how much do you think this will add to apple's bottom line and thatipad sales?

We go from being a mid-aged rower as it saturates the consumer markets to potentially being a double-digit grower again as it penetrates new enterprise opportunities.

Let's not forget these apps they are talking about, the new enterprise-specific business model apps will coincide with a refresh on ios devices.

We will be getting larger iphones.

Empowering mobile users with customer and business specific applications loaded on them could have some very far-reaching implications.

A lot of things could move the needle for apple.

It was interesting to see tim cook photograph with the ibm ceo but this is the second time we've seen it recently.

Before it was jimmy iovine and dr.

Dre with tim cook.

Is this a new apple, a new more cooperative apple?

There was a time when the macintosh computer did not have the best ships in the world and they would not or could not partner with intel.

They did this combination deal with ibm and motorola developing a chip called the powerpc that ran the mac for i'm going to guess about 10 years or so.

A long time ago.

It was 10 or 15 years ago when they made the switch.

These are people who were around when those partnerships were happening.

Apple know who's the biggest seller.

Now this two are together.

Cory johnson and alex gauna from jmp securities.

Alan mulally landed a spot at google after just retiring from ford earlier this month.

We will tell you about google's newest board member next.

? welcome back to "bloomberg west." i'm emily chang.

Google just named former ford ceo alan mulally to the board of directors.

He will serve on the google audit committee.

Mulally retired from ford earlier this month.

Editor-at-large cory johnson is still with us.

Joining us from new york is bloomberg's matt miller.

You have interviewed alan mulally many times over the years.

Did he give you any hints about this?

He did not.

I spent the morning e-mailing back and forth with him seeing what he's up to, how he's doing thinking he would drop me a clue on the future, but he just said he was hanging out, finishing his social security benefits and practicing his tennis game, not really telling me anything about google.

That's about what i would expect from him.

He's not a fan of cronyism and he will not give anyone any favors.

Just because we are great friends he does not give me the inside scoop.

It does not surprise me he's gone to google to be a board member there.

It seems ford, the way alan mulally sees it, and google, have more in common than one would think at first glance.

Is this a google putting even more chips on self driving cars?

I don't know.

First of all, there is not a company in the world that would not want alan mulally on their board.

He is a singularly impressive guy.

Talk a little bit about his background.

He spent decades at boeing.

He did not get the job as boeing ceo and he left a good afford.

It's a difficult situation --he left to go to ford.

You have the founders very involved in a company that needed significant change.

He negotiated that in significantly reduced product line and did really and things that the company financially before the company was in trouble.

They were able to survive and thrive while the others were begging for and desperately surviving on tarp money from the government.

He also changed the ways that cars are developed.

One of the few automakers where the interior electronics were developed on an entirely different plan than the rest of the car.

That's not the way detroit used to do things allowing for to be at the cutting edge of the driver experience in a way that no other u.s. automaker has done, but matt could speak better to that and i. he's really understanding how people use technology and that's a bigger deal than google self driving cars.

The software inside the car, which they announced, will be a big deal for this company while they tie the android operating system and everything that you do including what you do in the car.

What do you think google wants from alan mulally?

Why not planes?

He worked at boeing.

Why not the mobility solution of the future and that's what he was talking about when i was interviewing him his last few months and weeks at ford, not just about one car that one person buys and drives around, not only alan but will ford was a huge proponent of the idea that we need to come up with a better idea -- henry ford was a huge proponent of the idea for a better way for people to be able to move from one place to another and do it in an affordable way.

It's interesting to get back to the point.

While alan recognize the importance of what you do, how you are connected in the car, the connected car is something that they had been working on for a while.

Am not sure ford executed on that very well.

I have a ford f1 50 raptor that i absolutely love and i was looking at a gt today, a dream car, but the systems that ford comes out now do not work very well, to be quite honest.

It would be great if someone could figure out a better way to work these systems.

German car makers have done a great job and bmw especially has a great infotainment center.

Everyone else just does not do a great job of making it work and maybe google has a great shot at that.

Speaking broadly about what this means of the world of technology, microsoft often came up as a potential successor to steve ballmer.

Maybe they did not try to get him to come over there.

What do you think bill gates and steve ballmer are thinking?

They are both retired.

Is a 7-iron going to catch 170 yards?

That is what they worry about on a day-to-day basis.

They will be concerned.

This is a guy who could have helped microsoft in a lot of ways.

He might be a better guy for it.

Alan mulally is a guy who's a visionary thinker and really understands how to solve problems from a very senior corporate level.

It's very hard to do these things and he's one of the best there is.

They recognize one of the biggest competitors now has one of the strongest, clearest voices available in corporate america and indeed the world.

Cory johnson, editor at large, matt miller from new york, thank you.

Yahoo!

Ceo marissa mayer is not happy with her company's quarterly earnings.

We explain why next.

? welcome back to "bloomberg west." i'm emily chang.

Yahoo!

Is out with quarterly earnings and ceo marissa mayer is "not satisfied." yahoo!

Reported just over $1 billion down 4% year-over-year.

Net income just down 6.5%. for more on this, cory johnson as well as a bloomberg industries paul sweeney in new york.

You were saying alibaba has saved yahoo!

Again.

It does not look so good.

The core fundamentals that yahoo!

Probably took another step back believe it or not this quarter.

The company missed consensus numbers on revenue and eps second quarter so that was the disappointment.

Third-quarter guidance is always -- also below expectations.

The core display advertising business for them really took a big step back in the second quarter after showing a little bit of life in the first quarter.

Investors are stepping back saying marissa mayer has been their two years and made a lot of investments, a lot of acquisitions, lots of positive core product things but we're just not seeing it in the fundamentals as of yet.

When marissa mayer took over two years ago, everyone said to give her time.

It's been two years.

Paul is saying out who is taking a step act.

Do you remember what i said two years ago?

Warren buffett has this great line i paraphrase.

When a manager with a great reputation takes over a business with a lousy reputation, it's a tough job.

A lot of good people have gone in to try to get it to do better things and have approached it in very different ways.

One thing marissa mayer has done is responding well to wall street.

She had a board where dan loeb was a prominent figure and post for a lot of changes to help shareholders.

She gets credit for tweaking alibaba in ways that will benefit shareholders but this is about business and yahoo!'s influence on the world.

The financial machinations of buying back stock and fixing the alibaba issue to continue to benefit yahoo!, those are financial machinations.

The harder job is getting people to go to yahoo!, use yahoo!, and get advertisers to pay for it.

You have a situation where marissa mayer spent over $1.4 billion in acquisitions in the last two years into the same time you see revenue falling, restructuring taking away operating profits of the business is making less money on an operating basis, forget alibaba.

At the same time, you have revenue is falling.

Of the same time you have been spending over $1 billion in acquisition to boost that revenue.

One of the changes she has made is doing the video conference call and we have a quote from her on that.

Let's take a listen.

Which transformed our culture by focusing our strategy on speed and execution.

We have transformed our products by investing in those that can drive long-term growth.

Along the way, we have reinvented every single major consumer product that yahoo!. now we are transforming the ways in which we generate revenue countering declines with investments in new products.

That was just the audio.

The video was so scary last time.

It is best left to professionals.

Paul, is she just not convincing?

She's not convincing advertisers.

The advertisers are not coming.

That's exactly right.

Think about their core display advertising business.

They are losing tremendous amount of market share to the google and facebook's of the world.

Clearly, the fundamentals are not there.

Over 800 million users every month and the engagement is getting better.

They are making investments in some of the key growth product in terms of video product on the internet.

They are making investments but not converting it to advertising sales.

They admitted this quarter they had an execution problem on advertising sales itch cost the pricing to go down about 24% year-over-year on display advertising pricing.

The execution just has not been there on the advertising side.

And the question simply becomes at what point does the patients wear out?

That is where alibaba comes in.

More good news whereby yahoo!

Can maintain a bigger ownership stake in alibaba post-ipo.

That's good for investors.

She's delivering on that front, the core fundamentals continue to disappoint.

Bloomberg industry director of north american research pulse we need.

I do -- paul sweeney.

This is developed after the bell.

Strong guidance from intel.

We knew the number would be stronger.

The analysts got it wrong.

Intel told us that a month ago.

They gave really strong results particularly in guidance.

Two things i want to highlight.

Revenue growth for this company is really strong year-over-year and really picking up from the doldrums that we saw a year-and-a-half ago.

We saw revenue growth last quarter of 8%. one year ago it was down 5 are sent year-over-year.

The other thing that was really, really impressive is gross margin towards 66% next quarter.

That's tremendous.

These guys have gone in six quarters, that spectacular.

Without mobile because they aren't really there yet.

We should not count them out yet.

There are many generations to come.

They can really make a lot of money.

Great job this quarter and next quarter apparently as well.

Cory johnson, editor at large.

More with "bloomberg west" after this quick break.

? you are watching "bloomberg west" where we focus on technology in the future of business.

Janet yellen testifying in front of the senate banking committee today saying the recovery is not yet complete and more easing is needed to improve the labor market.

She also question the valuation of social media stocks in the friend report saying, "never the less the valuation metrics in some sectors do appears substantially stretched, particularly for some smaller firms in social media and biotechnology companies." facebook, twitter, and yelp dip briefly.

According to people familiar with the matter, reductions in engineering, marketing, and the nokia unit may be unveiled as soon as this week.

This round of layoffs could be the biggest in microsoft history topping the jobs cut in 2009. also with us, bloomberg industry microsoft reporter.

This could be happening imminently.

How big of a deal is it?

You are bound to see a bot of reductions when there are implications.

More importantly than that, they are changing microsoft into a cloud first mobile first company.

With that will come certain changes, like it or not.

There'll be some job reductions in certain areas.

Nadalella indicated some hard choices to come.

How necessary is it for microsoft outside of nokia?

This is satya starting to put his stamp on the company.

He was the inside candidate.

He was hand-picked.

All the outside candidates and they stuck with the inside guy that would follow the board's decision.

They made a decision going in for satya nadella as ceo.

Spending cash on acquisitions or whether to increase dividend payments, his hands have been tied.

I have been talking to a handful of microsoft people in they are talking about things they are seeing inside the company, certain people moveing to the head of different organizations.

Satya is making the move about his personnel.

You'll see people shaking out with the trees.

This is a very big move to do it all at once.

Not every company does wings this way.

Ibm never reports they offs.

Where as hewlett-packard, an enormous number of layoffs 50,000. let's talk about that.

Hewlett-packard has been laying off people by the tens of thousands.

They have so many more people than companies like google and facebook.

If you look at revenue per employee, it is nowhere near microsoft, once on the cutting-edge of this thing.

Hewlett-packard, much bigger consulting division.

An army of consultants come with you to try to sell you more sent out -- more stuff.

There might be one microsoft person that works with the company for a short time whereas the i.t. department is left on their own.

That is why the margins are so strong at microsoft.

I think this is more about, rather than changing the way the business works changing personnel land direction.

Talk about trimming the fat, where is the fat at microsoft, anurag?

What divisions need to be cut down now that we know more about satya's decision?

It will be interesting to see when this comes out.

If you look at the way the company has been, it has been moving towards cloud and enterprise mobile devices.

Where are they going to invest resources going forward?

You can safely assume the other areas that are not the top three or top five will be affected.

He recently spoke with "the new york times" highlighted artificial intelligent dan project adam back and tell you the breed of dog in the photo.

Is ai something that can be a big part of microsoft's future?

The nuts and bolts is selling windows and selling office, right?

You talk to microsoft sales people and they will say they go into the biggest accounts and tried to get them to buy the next biggest windows upgrade, the next office.

That is where the real money is for this company.

They have to appear to be cutting-edge because they want to bring customers along.

Look.

There was a time when you could get a corporation to upgrade because you add the ability to print envelopes.

That was a really big deal.

These kinds of incremental changes in the basic operating software is what microsoft has been able to upsell every few years.

They will have some glittery, shiny objects to get the accounts to think of microsoft as cutting-edge where they need to pursue the latest upgrade.

But being on the cutting-edge and appearing to be on the cutting-edge are two different things.

Anurag, can microsoft still be on the cutting-edge if microsoft and windows are there two biggest things?

Investors are looking to see whether the new ceo can push new blood into this behemoth that dominates operating systems and office.

Before it moves to cloud, can they really make it and compete aggressively with the likes of amazon and google?

That will be the biggest question and challenge for the new ceo.

Anurag rana from bloomberg industries and editor-at-large cory johnson, thank you.

Peter teal known for his bold investments, so how does the fund choose his investments?

One of the partners is here with us.

? welcome back to "bloomberg west." i'm emily chang.

From investing in robots to 20th century space travel, founders fund has one of the most unique word folios.

Founded by paypal cofounder peter thiel, known for its bold bets and risky invest ends.

What's behind their philosophy?

Jeff lewis joins us in studio.

You guys are always investing in things that sound crazy, software for oil rigs, hampton creek foods trying to replace eggs in the food chain.

How do you explain the strategy?

The strategy is to invest in the anthony's to radically advance humanity.

That's the strategy.

-- the strategy is to invest in the companies to radically advance humanity.

Spacex is trying to advance humanity to mars.

One investment that has recently come public, emerald therapeutics, trying to build an amazon service for life sciences reducing the cost for life science companies by an order of magnitude and hopefully lead to a renaissance in the creation of that type of company.

It's more about making things more affordable for everyday people.

That's also a really big problem.

What are the companies that will radically advance things across a wide range of industries?

It's not always obvious in the beginning how they will advance things.

It is a very strong narrative on that score.

Income inequality has been a big issue here in san francisco and across the country.

How did the investments you make change the income gap?

I think one important thing to note on this is that silicon valley is really out of touch on how badly people in this country are actually hurting.

20 miles behind you right now in vallejo, if you exclude part-time work, the unemployment rate is 50%. 20% of children are living in poverty.

I would argue that these solve 1% problems.

You think silicon valley is fairly being targeted in this debate?

The dominant narrative is that technology is primarily responsible for the loss of jobs in this country.

I think that is unfair.

Over the last quarter century, most of the job losses can be far more attributed to globalization than to technology.

In the very long run, technology leads to an increase or parity through creating new industries that that takes a long time to play out.

In the short term, yes, people are getting displaced primarily due to globalization and not technology, but silicon valley is targeted because wealth creation here happens so much faster in a way that is much more dramatic than another industries.

It's obvious why we are being targeted.

We've done a very bad job of coming up with a compelling narrative on why we should not be.

One solution is to work on nor invest in technologies or companies to help change the status for the kid in poverty in vallejo.

Others are saying because wealth is created so dramatic that the tech community should give more.

Maybe they should donate a certain percentage of their equity or the money they make.

What do you think about that?

Two different approaches to helping the community.

As someone who grew up, i believe in giving back to one's community.

There are very few nonprofit entities that are effective.

There are great efforts here in the bay area and i'm bullish on some of the things that are happening.

I think with more important is for technologists to build technology that will dramatically reduce cost or things that matter for folks.

Give me an example of something you are invested in to help someone in vallejo.

One recent example is a company called wish.

On the surface, it looks like many companies in the mobile commerce area to build the largest mobile shopping mall.

There are a few things that make it very different.

The prices are actually a lot cheaper than what you can get pretty much anywhere else.

Even on amazon?

Generally for many items, yes.

If you live in a rural area, rather than having to spend money on gas, drive to walmart --which is displaced many local merchants --you can go on wish and get things tailored affordably shipped to you.

How does wish afford that?

The argument is that a lot of these smaller e-commerce companies will not survive because amazon is eating their lunch.

Far less overhead.

Wish has far less overhead than a brick-and-mortar store.

Product categories are different than they have been growing incredibly fast.

The technology under the hood is much different.

Division is not about the merchant model.

An amazon, merchants are selecting product and figuring out what will be given to a consumer.

In wish, it's all driven by collaborative filtering and machine learning.

Both the technology and the go to market focus on the value conscious consumer is different.

You are on the board of lyft.

They were supposed to launch in new york on friday, yesterday.

It's not happening.

They are talking with the taxi and limousine commission.

What's the latest?

How concerned are you?

We are not concerned about the regulatory stuff at all.

Regulation follows consumer demand and we have seen that play out across all sorts of industries.

In the near term, it's painful to deal with it.

At the end of the day, the people in the layout and everywhere need ultralow cost transportation.

We have only scratched the surface on how big this market is.

We believe that lyft is well-positioned to really grab that market.

We are only in the first inning of that playing out.

I'm not worried about the regulatory stuff personally.

Geoff lewis, founders fund partner, thank you for joining us today on "bloomberg west." today is the last day for the public to provide initial comments on the cc reposed net neutrality rules.

-- on the fcc proposed net neutrality rules.

That's next on "bloomberg west." ? welcome back to "bloomberg west." the fcc extended the deadline for public comments on the open internet proposal after receiving half a million comments over the last two months.

The surge of comments were received expressing public opinion on how the internet should be regulated.

Cory johnson is back with more.

You have been following this one very closely.

A lot of people out there have strong opinions about it.

When will we see the end?

Who knows.

One of the big issues and the biggest debate all of closely is the basic notion of what is an open internet?

What is net neutrality?

Let me give you a basic look at what net neutrality really is.

Al gore did not invent the internet, but he did invent the phrase information superhighway.

What better metaphor to explain the idea of the controversial notion of net neutrality?

Let's use the superhighway metaphor and let's take a drive.

Bandwidth hogging, gas guzzling beast like steve mcqueen's in 1968 mustang gt in "bullet," a metaphor for a video, we pulled out of the parking lot.

We hit the interstate, the back bone, at full speed as fast as 100 gigabits per second.

They are run by private companies like at&t, deutsche telekom, level three, centurylink.

They travel the same speed.

That last mile is owned by a small group of internet service providers like comcast, time warner cable, and verizon.

They have different rules of the road.

We got off the information super highway but now we are hitting traffic.

When the traffic jams are fellow travelers, others like the netflix 18 wheeler monster truck was able to pay for their own fast lane.

That's the deal they struck recently with comcast allowing their service to get to consumers faster than their competitors.

Is that fair?

Net neutrality would make it an even playing field for all the drivers on the road in that last mile.

The toll keepers, comcast and time warner, don't like it.

They want their own rules of the road.

Drivers like us just want the freedom of the open road.

So what is it about net neutrality that has people so up in arms?

I think the things that get business people up in arms is what kind of businesses could be developed in the future?

If it is pay to play, netflix wins because they have more money over hulu.

The next netflix won't stand a chance.

Lyft over uber, the type of companies i can be innovative and change things will not be able to succeed.

We have had so many comments from people, as many as 2000 per hour flooding into the fcc about this.

Let me read from one of them, a business comment, that speaks to the kind of commentary.

" broadband internet access providers have the incentive to discriminate and block internet traffic.

They have the tools to carry this out.

They have the ability to distribute the blame to other stakeholders." there's real concern for real business people.

I was talking to a former fcc commissioner who says they don't do this.

Money does not influence these guys.

Comcast spends more than any company in the world lobbying washington except for defense contractors.

To these comments matter?

They extended the comment period.

Why?

You can make a really sane argument that the internet was created for the benefit of fcc.

They were at a principal role in creating the public internet because they wanted things like public forums for people to do better service, to offer a citizens democracy online.

If it was ever going to happen, you would expect it to happen here.

Obviously this is something we will continue to follow.

We don't know how long it will take, but i do now want to get to the bwest byte, one number that tells a whole lot.

What have you got today?

You know i love kitten videos.

I also love turtles.

[laughter] surging in a spectacular run.

Excited about go pro but media like this, the turtle video exploding on the internet.

They told us zero about media revenue but they did tell us that 13% of the company's business depended on camera sales to one retailer, we understand to be best buy.

They really rely on selling gear.

Let's talk about this.

This c turner was -- saea turtle was caught and instead of swimming off he circled back around and made contact with the diver.

He was able to hold it.

Isn't that sweet?

Have you ever had turtle soup?

I'm from hawaii.

Do not ask me questions like that.

I am pro-turtle.

Let's talk about how this fits into go pro's business future when it comes to media and content.

I got three other go pro video and they are betting this can be the actual future of the company aside from hardware sales.

Being successful in terms of revenue, getting people to look at things, we know there is a very big difference there.

Yahoo!

Reporting results to they had operating margins of 8% and google in the same business is doing 35%. we will see if they can turn this media business profitable.

They have had great success with margin selling cameras.

Cory johnson editor-at-large, thank you.

Thank you all for watching this edition of "bloomberg west." get the latest headlines at the top of the hour on bloomberg radio and always on bloomberg.com/technology.

We'll see you tomorrow.

?

This text has been automatically generated. It may not be 100% accurate.

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