This is "taking stock" for tuesday, july 23, 2013. i'm pimm fox.
We look at patterns of risk in entertainment and yes, even a small.
Apple posting earnings per share@$.47. that bested analyst estimates.
We will see how the technology giant will make the net -- will make the leap to the next big thing.
Plus, the battle for your attention.
Television networks bidding for ratings and of course advertising dollars.
And a spall.
Stars with multimillion dollar contracts -- and baseball.
Stars with multimillion dollar contracts caught up in scandal.
Let's look at the market action.
The dow jones industrial average up 22 points.
The standout losing -- the s&p 500 losing on the close.
The nasdaq trending down . for a closer look at individual companies making headlines, let's go to my radio cohost, carol massar.
At the iphone maker reported earnings that beat analyst estimates.
There was the disappointment with ipad sales.
They were down 14% from the prior year.
Earnings today continue with at&t. they posted profits that fell just a low analyst.
The numbers work associated with the cost of discounting smartphones.
And on the earnings front, electronics maker posted sales that beat analyst estimates.
Those, pimm, are stocks we are watching at this hour.
Thank you very much, carol massar.
Apple's conference call set to start at any moment.
Training from san francisco, bloomberg west editor-at-large cory johnson and re: we be and also joining us via skype from her room, new hampshire, we have the cofounder of "mac observer" and cohost of the podcast "m ac beat." cory johnson, run through the numbers for us.
What did apple do over the last three months?
It did not grow it all in terms of revenue.
And it made less money.
That said, expectations on wall street were so low that is considered good news for this company.
They did increase the sales growth for the iphone.
The numbers have been coming down quite a bit.
They picked up a 20% year-over- year growth on iphones sold and that is good news for these guys.
The iphone is well over half of the business.
The ipad slowed down.
They sold fewer ipads the same time last year for the first time ever since the ipad was introduced.
They have some work to do down in cupertino, where the company is still selling boatloads of products.
I was talking to carol about this on the radio.
More than 100 or he 3 million iphones in the last -- more than 143 million iphones in the last three months.
Ari leavy, what to expect to hear from tim cook on the conference call?
41% gross margin growth for the company in the last three years.
It is now down to the mid to high 30's. you have to deal with google giving away its operating system.
We can never discount that.
Tim cook has to manage that without sacrificing quality and without sacrificing too much profit.
One of the big hits that the apple stock is taken over the last six months to a year is the fact that investors are used to various margins and now they have to deal with a modified margin.
Talk about technology at apple and the refresh of the operating system for the iphone.
Yes, so they showed off at the development conference last month and it is a radical change from what they started with would be smartphones six years ago and i think that is a good thing in terms of the fact that it is change.
Whether that change will be well received by users remains to be seen.
What we have seen so far, much cleaner.
But there is a lot of people saying perhaps it is too clean, myself included.
It will be interesting to see how that rolls out, when it rolls out or the public in the fall.
-- for the public in the fall.
Cory johnson, do we need to opus on the technology versus the execution of how many iphones, ipads are sold, do we ever impair the technology?
From my perspective i love quarterly earnings.
It is the moment the company cannot lie to us.
We can look at the numbers, see how the business is performing.
Apple has not released a ton of information, but they give enough away that they start to understand the business.
The moment i can look at real numbers and see, forget all the press releases and all the advertisers and hoopla over product release, when i can see how the business is doing, when i can see that they are selling fewer ipads for the first time ever been a year ago, when i can see, i think that is truly interesting.
I think it is also worth noting, he price for the ipad has been falling by double digits rates for six quarters.
That is hurting, in fact, asp.
Asp is average selling price.
Ari leavy, does apple need to increase its market share outside the u.s.? it depends on whether they are going for overall growth or quality growth.
They do not want to undercut the premium price is too much, which is what they would have to in a number of emerging markets to maintain profitability.
Certainly, that is where a tremendous amount of global group -- global growth is.
When you look at new products, when was the last time that apple created an new killer product?
We used to talk about them every six months, every nine months.
Now we are talking about variability in sizes with the expectation that one day there will be a wristwatch or a tv, but we have not seen that.
Dave, talk about the hardware.
Are you seeing more hardware problems with apple?
I think we are seeing more hardware failures.
You have to remember apple's hardware and software is tied together.
They are one.
And that is part of the this is.
They are are able to ship the complete widget.
Take the iphone for example.
You keep looking at battery life.
It keeps diminishing.
4 to 4s to iphone 5 which will barely run a day.
I think they are rushing to market because they have to.
They have competitors they did not have five years ago in this space, and they have to get get these features out.
They put a bigger screen on the iphone 5 with a huge cost to battery life because they made it so thin.
Ari levy, talk about the competition from android and nokia.
What role will be new operating systems lay with the competition to take market share away from the iphone?
Let's be clear when we talk about competition.
It is android.
Android has 70% of the market share.
You are not talking many other competitors out there.
There are certainly people making the switch.
At as the quality of the android devices improves and the pricing gap grows.
When i can get almost as good functionality on the ipad were iphone at half the price, it becomes a no-brainer except for that very upper echelon of people.
We are seeing a shift taking place.
Cory johnson, you mentioned that while apple may be selling iphones, they are not making as much money selling them.
How did they stop that?
They may not want to stop that.
They wanted to keep the margins where they can keep it, but if they can lower the price to gain more market share, they may never have to go down market with a less-featured phone.
They can continue to sell the phone they have and the new markets they open up and the prophet margins may stay the same.
-- the profit margins may stay the same.
To ari's point, i think the company recognizes they need to come out with new products.
We will continue the conversation about apple as we await the conference call.
We do have more with cory johnson, the bloomberg west editor at large, and dave hamilton.
Coming up, we will also take stock of the sports industry.
Super agent leigh steinberg will give us his reaction and thoughts about the latest drug- related suspension in baseball, next.
? apple reporting third-quarter profits and sales that exceeded analyst estimates.
I am joined by bloomberg west editor-at-large cory johnson from san francisco.
Also from san francisco, we have stephen drucker, the cheap executive of e-u. also joining me, and dave hamilton from "mac observer." you have said that we live in apple's distortion field.
What do you mean by that?
I think we see the biggest change in device technology.
Tablets cost 300 or $400 with an occasional cheap one at $200. you have not seen nothing yet.
Coming this october, there will be a really wonderful android and the hardware coming from top-quality manufacturers in the far east at price points basically from $100 to 100 $49. that is the new reality of mini tablets, and soon-to-be in the smartphone and larger tablet formats.
Stephen dukker, you have worked for radioshack and comp aq.
From a vendor perspective, what do you take away from apple's business model?
It is not just a hardware.
Hardware ultimately commoditize is.
The key is leveraging the ecosystem, because apple has created such a cash machine in all of the stuff surrounding the tablet and the smartphone.
Even if they were giving away the hardware, they would have a 10- year forward-looking earnings that would be spec tabular for the momentum -- that would be spectacular for the momentum of the device.
We are headed to a point where that is really where the business is and we are getting to low-margin, very high volume space.
Cory johnson, can you comment on this topic?
The margins will continue to drop in the price will continue to shrink.
Yes, we have seen this with the iphone prices falling and the margins falling.
I think we have seen that.
It is really low for a company that was doing 40% two years ago to be 26%. again, they sold 140 million iphones in the last year.
Let's not feel too sorry for them.
But it is changing and you can see it in the numbers.
Dave hamilton, what would it take to get you to use an android device?
Is it about price or the technology and the hardware?
It is definitely the technology and the hardware.
There is a lot about android i like.
It is much more open -- what do you mean when you say it is more open?
Application developers have more freedom on android than they do on ios.
Apple is very strict about the bounds that after the first need to live within.
Android, those rules are a lot looser.
That allows for things to happen a lot better and for things to into great with the os better.
But it comes at the price of potentially crashing the phone or causing instability in different places.
It is just two different mindsets.
Apple has always been of the mindset, you know, we want to keep the app volcker's in a box and that is that.
-- the app developers in a box and that is that.
Android, not so much.
Keeping the developers in a box.
Does apple need to change its strategy?
I'm not sure.
Apple has always been tremendously successful at doing what apple does.
When they going into the market, like microsoft did, that is not their business.
Far be it for me to suggest they change their mind.apple but to dave's comment, effect is two years ago android was weak.
Last year it showed potential.
This year, android is well- differentiated, makes no apologies to ios, and to the sense that it is somewhat different from ios, of course it has done a great job of segmenting the more sophisticated user -- although you can "simplify" the android experience if you need to -- and the desktop experience, which is something ios has never provided.
Generally, with apple shipping the ios 7, android has become a more modern operating system than ios and one that bridges the gap between the laptop, the tablet and the cell phone.
I think android's ecosystem has nowhere to go but up and the seven percent market share is really just beginning.
I want to thank you gentlemen very much.
Joining us from san francisco, stephen dukker, cory johnson, and dave hamilton, the cofounder of"mac geek," a podcast online.
Coming up, we will talk about the risks television must take to grab the attention of viewers.
The battle for your eyeballs, next.
? the summer television season is upon us and the networks are introducing more new programming than ever before.
It's the new programs to be exact.
Tbs's under -- cb's "under the dome" with more than 14.5 viewers in the very first episode.
And my next guest is here to talk about univision.
Brad, thank you for coming in.
People may not the familiar with it.
What is so big about what you are doing this summer?
We have been doing this every summer really.
The networks full be tense with repeats.
Univision is putting on original -- the networks fold their tents with repeats.
Univision is putting on your original fellow novellas -- telenovelas.
Nothing new, but they are closing the gap.
Spanish-language soap operas?
Soap operas, yes.
There are no repeat.
There would be another telen ovela.
Turn your attention to cbs and "under the dome." what is the plan?
They are very conservative.
They run a lot of these repeats.
"egg bang theory -- "big bang theory." "under the dome" is a series produced by steven spielberg based on a book by stephen king.
What is interesting is you pointed out the viewers.
I just put out -- they put out a statement that said after the show first aired, they got an additional 7 million viewers online and through different venues.
It is on amazon for days after airing on cbs.
It is really about the future of where these networks are going and how they can monetize.
You mentioned this world of online streaming.
I want to get your thoughts on apple.
They are going into the television business.
Intel said they wanted to be in the tv business.
Is there room for all of these competitors?
Net looks, hulu, amazon -- netflix, hulu, amazon?
There is an audience.
Hulu, they have another $750 million of rogue ramming and to promote the -- of programming and to promote the online service.
Amazon, -- yahoo!
Is coming out with its own original rogue ramming.
Youtube has hundreds of channels.
Those are being professionally made and getting advertising time.
It is getting more and more professionalized.
Shows like "under the dome" are ahead of the curve.
We will be watching a lot of tv.
Thanks very much, brad adgate --brad adgate.
It is time for on the markets.
The dow jones industrial average added 22 points.
The nasdaq down 20 one.
Cisco systems closed lower by .6%. it is paying nearly $3 billion for solar fire.
And thanks to the money of fans, veronica mars.
We will tell you about a story of a movie that raises money online.
? this is "taking stock" on bloomberg.
I'm pimm fox.
Let's go right to mark crumpton for a look at headlines.
Apple reported earnings that beat analyst estimates.
There was disappointment when it comes to ipad sales.
They fell short of the estimates . the dreaded debt ceiling debate may be returning to washington.
House speaker john boehner today signaled a fight with the white house and the senate over raising the borrowing authority later this year.
He says he will not raise the ceiling without real spending cuts.
And the new royal baby boy met the world.
Prince william and the duchess of cambridge st.
Mary's hospital in central london a day after the birth.
The baby boy becomes heard in line for the british throne.
Tonight, meet rolling stone's publisher to join me or a look at how apple is changing the way with consumed content and reimagining the way that we watch television.
That is tonight at 7:00 p.m. eastern on bloomberg television.
Back to you.
Rings very much.
Start up companies are not allowed -- thanks very much.
Start up companies are no longer -- are not allowed to double size -- my next guest started the equity raising platform early shares.
He started it in 2000 720 entrepreneurs cap -- connect with capital they need to get the business off the ground.
What is this rule change?
This is after the jobs act.
Of the jobs act was passed april fifth of last year.
It did two things.
For the first time, uncredited investors could invest in private places and it was a change from the 1933 law of general solicitation of accredited investors.
What that means is, traditionally, you had to have an investor first and to show them the offering.
Now you can show the offering and have them come to you.
It is a big change.
What is the basis behind the change?
Is a technological or a difference between the ways is mrs.
Can and cannot raise money?
-- businesses can and cannot raise money?
It really had to do with the way that the banks shut their doors after the credit crisis.
The white house understood this and knew they had to make cash more accessible to small businesses so they could build and grow.
Talk about early shares?
What is that design to do?
We were one of the first to contemplate equity crowd funding.
We were originally set up to go to congressman and senators.
What happened is on the day that the jobs act was passed, our website was featured on start up america as the way to do crowd funding.
It was terrific.
We really had a business from that point.
Fast-forward to years.
We cannot even do this yet.
We are in the final phase.
Those who come to your site who may or may not wish to invest in one of these 2000 companies, how do they get vetted?
Or can anyone invest their money?
Anyone can come on the sites.
Right now it is only open for accredited investors.
Accredited investors who have made over $200,000 a year or have a net worth of $1 million.
Everybody else, we have a lot of projects that are not investment -based the better more philanthropic, but right now it is open to accredited investors to go through and accreditation process.
"veronica mars." i have to ask you about this.
They have raised what, $5.5 million for "veronica mars." is that the model for the future of all investments?
They raised money, but the people who raise the money only got the award because they had the producer role.
We would be able to offer ownership in the movie, so not only do you get the reward, but you have the potential to make money if it is successful.
As far as the return on the money, how do you determine the investment -- the business you are investing in is a verified business?
Is there a vetting process?
There is an extremely long vetting process.
Once again through our process, we have a national brokerage firm that does their own due diligence.
A take to the next level.
There there is a tremendous amount of in-depth due diligence.
All right, the company comes to your site.
The investor registers.
How do you make money?
We make a percentage anywhere from five percentto eight percent depending on the size of the amount raised.
The size of the amount of money raised?
The industries we are seeing are more -- what is the word -- they are more used -- more interested in using this crowd funding to raise money?
Right now it is pretty broad- based.
We are doing some deals with incubators to find startups that get through those programs.
When i started this, i thought it would all be startups.
Actually startups are only 30% of the companies that are registered with us.
The rest are real businesses that need real revenues to take it to the next level.
Up to me, that is what really exciting.
That will help stimulate our economy.
If you want to start a supply business, you put your business up online and -- absolutely.
But in today's world of technology, it takes it to the next level.
You put all of your things on there and you will be able to -- one of the things we're going to offer is a company dashboard which will really separate us.
It will tell you where people care about your investment or your company.
What social mediums are getting the most coverage?
You will be able to target market those places.
It is really for everybody.
Consumer-based radix are very interesting.
Early days for early shares.
Thank you very much.
The founder and chairman of early shares.
Coming up, major league baseball superstar ryan brown --ryan braun faces a suspension.
I speak to leigh steinberg about what to be next for alex rodriguez.
? this is "taking stock" on bloomberg.
I am pimm fox.
In 2007, ryan braun was the most valuable player.
Force -- after a performance- enhancing drugs scandal, he will be watching the rest of this season's gains from his television watching couch.
Joining me, leigh steinberg.
He joins us from newport beach, california.
Good to have you with us on "taking stock." what do you make of the developments on the ban?
The first thing is it was only a year ago that ryan braun was on television telling all of his fans, don't believe any of this, i'm innocent.
So, the first casualty is the credibility of aptly and it -- of athletes and it follows the same pattern as lance armstrong, who stands there and tells young old, well, i'm not guilty.
So, that is the first casualty.
Whether it is marion jones or any of them.
That is not a positive inc.. the second -- that is not a positive thing.
The second aspect, this is a blended verdict.
The first positive is 50 games.
The second is 100. somehow they negotiated this as the end.
The reality is, this is the first name it that is going to drop.
There are about 20 players connected to the miami-area clinic that was at the heart of the last investigation, called biogenesis in miami.
There is a whole list of name there, including a-rod, that will in-depth getting suspended.
So, it is a major doping scandal . the problem with steroids is they create an uneven playing field.
It makes you start to suspect any levels of achievement, records, team performance, individual performance.
So, it is uneven.
The second is it sans the disastrous message to young people -- let me break in there.
What about the risks to the clubs?
If they have a superstar with a multiyear on tracked like alex rodriguez, the club is running a big risk . they are absolutely on the hook unless they have specific ped language that obviates or gets them out of the guarantees, because ryan braun will come back and he has got another what?
$175 million or more?
Have you ever seen that written into a contract or put it in?
That is the whole point.
These contracts are guaranteed for skill.
Meaning if the player is not very good anymore, he still gets paid every last year, and that they are guaranteed for injury off the field and on the field.
I even wrote one for mental disability, so if the layer was sitting drooling on a park land and not even identify what a baseball was, he still got paid.
The team takes extraordinary risk in all of this, which is why trying to have the right scouting techniques, for players in high school or college, trying to have monitoring systems and understanding what is real, what is not, and which players have the proclivity to try to enhance their performance -- what is next for alex rodriguez and the yankees?
He will be suspended, two, i would suspect.
That may well be the last year he plays for the yankees in baseball.
I do not see him having a long future there.
You could sort of see that brian cashman knew something.
He was so angry about rodriguez to eating his own condition -- tweeting his own condition.
I think it will be very difficult for him to come back and play given how last season ended and what may be the revelations.
Because if that is the way he played with her formants enhancing drugs -- substances, and it was not very good, i don't think he has a great future.
Leigh, what about the status and the baseball hall of fame or various baseball records?
We wipe the slate lean?
This battle has been raging for a number of years now in terms of roger clemens and mark mcgwire and people have taken two different tacts.
What makes this different, even from pick-and-rolls who gambled, that was behavior that did not affect his actual performance.
This behavior affects the ability to hit the ball 20 feet longer and it goes out of the park, the ability to throw the ball seven miles an hour faster and enables you to get the batters out more easily.
There is a very legitimate argument that anyone convicted of this needs to have their statistics reevaluated and their whole performance reevaluated.
That you really cannot compare someone performing naturally with someone performing with steroids.
The point is they work.
They do enhance performance, at a gross cost to the human body and a gross emotional cost, which people do not talk about.
But they do work.
Therefore it is not a fair comparison.
All right, thank you very much for joining us.
Leigh steinberg, one of the world's first super sports agents, talking about performance-enhancing drugs.
Let's talk about wall street tomorrow.
Shareholders will have to vote on michael dell's buyout offer.
Also on the tech front, you will hear facebook earnings, the earnings for the second quarter expected to rise on again of the six billion dollars according to a survey at bloomberg.
And caterpillar and boeing also reporting in the u.s.. we will get those home sales numbers.
Thank you very much, carol massar.
We will wrap up our our taking a look at risk with someone who analyzes market risk for living.
? over the past hour we have taken a look at the risks being taken in technology -- obviously apple.
Also sports with performance- enhancing drugs and the entertainment business with television.
Risk is something investors have to do one of the lee -- a daily basis.
My next guest assesses risk.
He is a global risk manager.
Also joining me my radio cohost, carol massar.
We have been talking for the last 60 minutes or so.
What are the biggest risks for investors?
I think the biggest risk is complacency.
I think people are getting convenient amnesia and forgetting any lessons learned from 2008. i see this with institutional investors who are supposed to know better, coming on shows like this, as well as your rival shows, saying the equity markets, for example, which are dragging everyone along, as only having an upward trajectory.
As a risk manager -- they have been right so far, this year, right?
If you look at the s&p 500, the dow jones industrial average, they are up for than 18% so far this year.
I'm not suggesting you take your money and put it in a mattress.
Take the s&p for example.
Even a little analysis shows those earnings are shaky.
For example, four percent of 20 companies that are responsible for 35% of the total earnings for s&p, and you look at the 10 s&p sectors -- sectors like consumer, financials, etc., half of those companies will report negative or flat earnings.
So, right now if you look at s&p, it has been propelled by a lot of flack from the financial sector.
One thing that people need to be cautious about is that we cannot pin our hearts for example, economic recovery on one year or one statistic or the fact that some of the bullishness in the equity market is explained by the rotation of fixed income.
As long as the fed has easy monetary policy, even if they backed off their urges is, the rates will be low.
-- backed off their purchases, the rates will be low.
That is true.
We are in unprecedented time.
Normally if people talk about the risk for rate, they talk about treasuries.
Effectively, it is zero percent.
So, if we have this artificial time that is causing this depression where it looks like the equity risk premium -- the equity risk premium is normally four percent.
That is why it returns to you in you like government wants.
Right now that is close to 8%. that is being distorted through the distortions created by the fed easing.
My point that we are trying to make is there is still a lot of risk and people need to be vigilant thinking about value and not just assume happy days are here again.
Looking at the volatility index, does that mean anything to you?
It as out -- it is at levels that are very low.
The vix is at that 12%. if you are four or five percent lower than that average, that is something we point out to our clients.
We work with institutional investors as well as asset managers such as hedge funds.
And we tell them if you look at the last couple of years, august, september, october can historically be very volatile times.
So, that vix could be setting us up for some kind of correction.
We think people should be vigilant.
If you do see the value of their and depending on your investment horizon, i'm not suggesting you pull your money out and go to cash.
That would be very unwarranted and unwise advice.
Just look at the potential risk of your position?
There are economic and political risks out there.
We are far away from israel and palestine carving out a. we are far away from the debt ceiling -- the debt ceiling might come back.
We have got to leave it there.
Sam won joining us and my radio cohost carol massar.
It is 56 past the hour.
Take a look at the s&p 500. there it is.
The dow jones industrial average higher by 22. the nasdaq fell 21. margins rising today, two percent higher.
The largest contractor raising price estimates.
Thanks for taking stock.
I'm pimm fox.
At ?/ . .