Apple Stores in China: Bloomberg West (01/15)

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Jan. 15 (Bloomberg) -- Full episode of "Bloomberg West." Guests include Wedge Partners Senior Research Analyst Brian Blair, Bloomberg’s Emily Chang and Bloomberg Businessweek’s Sam Grobart. (Source: Bloomberg)

Economic growth could pick up here, that is good for stocks.

We are looking at a 15% gain in the stock market this year.

It sounds good.

Thank you so much.

We will be on the markets again in 30 minutes.

"bloomberg wes" starts next.

? live from pier three in san francisco, this is "bloomberg west." i am emily chang.

We are in new york all week long.

Along with sam grow part.

We got big news out of china print apple and china mobile have officially announced they are together and will start selling phones this friday.

Starting this weekend.

And this as potentially 700 million subscribers for apple.

It is a huge deal for apple.

It definitely gives them a potential boost as they see their market share numbers get a little bit flat or a little down.

In context, the largest wireless carrier -- carrier in the u.s. is verizon.

They have 100 million subscribers.

The 700 million figure for china mobile might include many other things that are not phones but conservatively, it is twice as big as verizon if not more.

The other big deal is that apple only has 10 stores in china.

They are trying to increase that number but this adds 3000 retail outlets where they can sell the iphone.

Apple stores have always been very successful around the world.

China is a big place of tapping into that network of retailers, 3000 of them, is used for apple and gets that phone deep into the country in a way that is more than just the big cities on the coast.

When it comes to cost, that has been the big apple problem.

It is so expensive, $870 for the iphone 5s, $738 for the next cheaper one.

Tim cook will tell you it was never supposed to be the cheaper one.

We see that in these unsubsidized prices.

Consider how that compares to some of the competition that apple has to face in that market.

The cost is somewhere in the $300 range.

It is a significant difference between apple and the competition.

Chao mi makes companies that looks like iphones but for less money.

The ceo models himself after steve jobs.

The other issue is screen size.

I spoke with baidu about this.

Robin li said chinese people want bigger screens.

Samsung and other companies offer this.

I spoke to him about apple.

Apple has experience in the u.s. but in china, the chinese characters are different from english.

You need a different drive engine to do that and apple does not have a good one to be uploaded in the app store.

That was interesting.

I did not realize the part about chinese characters and the difficulty of the language.

It is such a closed system, it is hard for them to adapt to different markets.

When it comes to the competition, there is samsung which is the leader in china but apple has a lot of companies nipping at its heels.

Many of them are cheaper.

Qua huei is another one offering phones at a cheaper price.

They are doing better than apple.

We have the coo yawe joining us today, jane lee.

You guys are pulling back on your networking and telecom which is your core business in the united states.

I believe your ceo mentioned this thing.

You have had difficulty with u.s. lawmakers concerned about your relationship with the chinese government.

Can you talk to us about your u.s. business right now and where it stands?

Yes, actually, we are not leaving the u.s.. on the contrary, we are growing our business in the u.s.. there is a lot of news in the media.

When you have $40 billion company and focus on innovation and technology, and when you are caught in the crossfire between two lurd -- two large economic powers, it is hard not to get sentimental about it.

The truth is that this is the greatest market in the world.

We like it here.

You are going to continue to sell your telecom equipment to u.s. businesses in the united states?

Yes, i'm responsible for the enterprise business.

We have engaged a lot of partners and it professionals and the u.s. about our product line and so far the reaction has been extremely positive.

Many people would like to see us and we have a broad roddick line.

We can do computing, storage and networking and we also have a very solid financials.

One of your main competitors in the u.s. globally has been cisco.

You trail them right now but you are growing faster than they are.

One of the things that people talk about is your ability to come in with much lower profit margins.

What are you hearing from your customers about these radically lower prices you can offer?

Are they surprised?

Actually, what we focus on is the next inflection point.

We don't necessarily focus on our competition, per se.

We think it is about the cloud computing race.

There is a huge growth in cloud computing.

The traditional it equipment is designed for on-site data centers.

We need a company with a large platform like we have.

To reinvent the equipment to adapt to the cloud infrastructure.

That is what we are good at.

We have been in networking infrastructure and cloud computing & and infrastructure.

We are ready.

I want to ask you about what has been going on in the united states, the revelations by edward snowden and the revelations about the extent of the was government surveillance policy.

Has that impacted your business at all?

Has that giving you guys a boost with companies saying we are worried about the u.s. government relationship with some of these technology companies?

Maybe they want to work with someone else.

Actually, on the contrary, it gives everybody perspective that we need a separate -- to separate politics from business.

Government needs to do what they need to do.

That is the situation for both the u.s. and china and others.

Meanwhile, for businesses, we are just a private company and are trying to innovate.

We spent over 14% of our $40 billion revenue in r&d. janeli from san francisco, thank you so much.

Coming up, we will talk more about artificial intelligence.

You got to the speak to the head of facebook?

Newly hired.

I saw some amazing stuff.

You will see more of that next.

? welcome back.

I want to bring in jon erlichman in l.a. talking about a really important story happening out of washington that has to do with net neutrality.

It is an important story because basically, a court has ruled that, potentially, carriers can charge more for certain kinds of internet access.

Bandwidth hog like netflix could be in trouble.

They could pass that onto the consumer or absorb it itself.

What does this mean for netflix?

Immediately, you have seen the stock market reaction and that put shares down.

Do a they have to change their pricing model?

Does that go away?

The quick answer is not just yet.

If you -- everybody loves to talk about all the new shows on netflix.

People are using netflix in a big way.

The numbers from netflix and others project that spending one hour a netflix everyday, even though that eats up a lot of broadband, is nowhere near the amount of total television that people are watching.

I think it is still early days for something like this.

It is something that everybody in the industry is thinking about.

There has been talk about this among policy groups and advocacy groups about what this may do for competition.

Generally speaking, the internet has been flat and open and if we go into a metered model, what does that mean as far as established internet company's and startups?

I think this is -- the lobbying power of all the internet giants in terms of getting their way, that's a whole mother story.

When you think about the companies that have been able to set up shop quickly through something like amazon web services, if all of a sudden, what they have to pay changes, maybe that start up does not exist at all.

That is a bad thing for a big player like amazon because maybe they don't get the business through their amazon web service.

If you think about cable versus the internet, you heard sony at ces talking about plans for an internet tv service.

Intel was thinking about that, maybe amazon goes down that road.

If all your tv cable is coming through the internet and internet companies are offering it for less, cable hates that so they will fight you.

The net neutrality title is boring but behind the scenes, you have huge lobbying efforts and battles between the traditional tv world and the internet world.

We are talking about tv and cable but net neutrality advocates are painting this nightmare scenario whereby internet browsing is one tier and facebook and twitter is another and then you have net lex, youtube and others.

This could have major implications for everyone.

Yes, i think it could.

We talk about the battle with the biggest players.

Sam raise the point about the smaller players.

A company like netflix could rob oblique afford to pay a little bit more whether they are forcing the consumer to pay more or paying whoever is providing the broadband a little bit more.

You could make the argument that the names you mentioned, whether it is facebook or netflix or youtube, they will become more powerful because of their pricing advantage because they got the skill earlier than anyone else.

At the end of the day, it will be positioned that the consumer should not have to necessarily pay more because they are watching a lot.

This comes down to how much you are actually gobbling up.

How much broadband are you using?

Nielsen says we watched eight hours of television per day.

Netflix diehards are watching a lot but they are not watching that amount.

If the technology -- companies like netflix think about going tohd, but they think about compression technology so that you are not eating up the same amount of bandwidth to deliver better content.

They are thinking about that in the same way.

Maybe the technology allows for this to come to you without having to get to this stop in the road where everybody is wondering if pricing changes.

Might this lead to possibly sponsored access, sponsored wireless and data access from larger media companies which could give them an advantage?

I think this opens the door for a lot of people to put their brand or their message on this and positioned themselves in that way.

If you go back to the example of the amazon web services which has been a great place for people trying to take advantage of the stuff that's available to them, yes, absolutely, that is something to watch for.

There is a lot of uncertainty and we will continue to watch for the changes down the road.

We will he write back.

? this is "bloomberg west." this is breaking news, the president is giving a speech on jobs and economy in n c state in raleigh.

We have a large market in new york.

The pieces are there to restore some of the ground the middle class has lost in recent decades.

, start raising wages for american families but it requires us to take action.

This has to be a year of action.

Here in north carolina, you are doing your part to create good jobs that pay good wages.

Congress has to do its part, two.

Restoring the american dream for everyone willing to work for it is something that should unite the country.

That should not divide the country.

That's what we should be aspiring to that everybody has a shot if they're willing to work hard and take responsibility.

[applause] on this -- in the short term, congress could listen to the majority of the merkin people and restore the unemployment insurance for americans who need it.

[applause] let me make an aside -- or carolina still has a higher than average unemployment rate.

This is important to this state.

Folks are not looking for a handout.

They are not looking for special treatment.

There are many people sending out resumes every day.

But the market, the job market is still tough in pockets around the country and people need support.

A little help so they can't look after their families while they are looking for a new job.

[applause] congress should do the right thing and extend this vital lifeline for many americans.

Of course, that is short-term.

Long-term, the challenge of making sure everybody who works argan get at in today's economy is so important that we cannot wait for congress to solve it.

Where i can act on my own without congress, i will do so.

Today i'm here to act, to help make raleigh durham and america a magnet for the good, high-tech manufacturing jobs that a growing middle class requires and that will continue to keep this country on the cutting edge.

[applause] we have already got some success to build on.

Manufacturing is a bright spot in this economy.

For decades, we have been losing manufacturing jobs.

But now our manufacturers have added, over the last four years, more than 550,000 new jobs including almost 80,000 manufacturing jobs in the last five months alone.

We want to keep that trend going.

We want to build on the kind of work that is being done in places like nc state to develop technology that was to new jobs and entire new industries.

A little over a year ago, we launched america's first manufacturing innovation institute in youngstown, ohio.

It is a partnership that includes companies and colleges that came up with a joint plan.

They were focusing on developing 3d printing technology and training workers with the skills required to master that technology.

That was a great start.

We got one going at some of the folks from youngstown are here today and we congratulate them on the great work they are doing.

The problem is we created one and in germany they have already have about six of them.

We've got some catching up to do.

I don't want the next big job creating discovery, the research and technology -- president obama speaking at and see state, talking about jobs and unemployment benefits.

We will closely follow another speech he will make this friday, talking about the nsa and the surveillance policies.

I want to bring in phil mattingly.

We have been talking about the speech coming up on friday.

New reports today about revelations that the nsa surveillance capabilities are even deeper and broader than we thought and that they can connect two computers that are not even on the internet.

What do we expect to hear from the president on friday?

I think the president will have a wide range speech when he goes to the justice department friday.

He will talk about the basis for these programs and why they are in place and white he thinks these programs work for it he will also announce a series of changes.

The couple that we know of off the bat, the spying on foreign leaders, particularly allies, will be cut off.

We will see the privacy advocates put into the secret court, the fisa court that allows the ball collection of all the data.

A lot of the stuff the president is going to push to congress and let congress decide how to go on these restrictions.

Lawmakers in both size of this issue are interested to see what he has to say.

When it comes to his proposal, it will be interesting to see what he can do on his own and what he wants to capitol hill to see of lawmakers can come to an agreement.

Thank you.

We will be right back with more of "bloomberg west." ? we are looking at bloomberg "on the markets." if you take a look at the markets, we have stocks rising for the second straight session.

We had better than estimated empire manufacturing data this morning as well as the world and raising its growth forecast for the globe.

That has been pushing stocks higher.

Solar city is one stock -- one company that plans to offer similar solar products to individual investors and it will introduce an online system within the next six months so that retail investors can provide solar panels.

? you are watching "bloomberg west." i am emily chang.

Apple says it will refund consumers more than $32 million over complaints it made apps too easy for kids to purchase without parents permission.

Under the settlement, apple agreed to change its billing practices to make sure it has not -- it has express consent from consumers.

Hewlett-packard is hoping to make a comeback in -- with smartphones.

It is watching android-based smartphones.

They stopped production of palm devices two years ago.

Linkedin is expanding its job postings, adding a new marketplace for unpaid volunteer work.

The career networking sites as it is working with volunteer organizations to make sure the opportunities listed are of the highest quality in a move could could he pull -- could keep people coming to lincoln even if they are not looking for a regular job.

Let's get back your special series on artificial intelligence.

I have been learning about how these big companies -- we are talking today about facebook which just formed an ai division but what will they do?

Will they make ray butts -- ray -- will they make robots?

It's about working with vast amounts of data that the service has been collecting and will be collecting in the future and what can we take out of that that will make the company more money and make it easier for consumers to use it.

They will require artificial intelligence.

I went downtown last week to meet their new head of ai, let's take a look.

Artificial intelligence till has a sci-fi ring to it.

The fact is, it is already behind a lot of our digital lives.

From the netflix movie recommendations to amazon shopping suggestions to gmail spam filtering.

Most everything you do on facebook or all the others, essentially there is an ai system behind it.

Yann lecun has been studying ai and now will be the first facebook at of artificial intelligence.

It is the company's bet on the future.

Until now, facebook was focused on getting infrastructure right.

Now that they are established in that position, the problem is to look forward 10 years from now.

There has been a talent grab among tech outfits.

We play an important role on how we interact with computers.

We are in a race with companies to establish themselves in the field.

Recommendation engines are nice but that is old hat.

The next step in the field is using ai to improve the computer's ability to see and hear.

We feed the image to a webcam.

It tells us what category of object it thinks it sees.

It's a chelsea boots but let's go with loafer.

How would something like that apply to my facebook experience in the future?

You upload pictures on facebook in the system will identify the objects in your picture and that will make it easier to search.

It will allow us to organize your pictures in a way that similar pictures work.

More sophisticated sensing abilities and an idea of what you want before you indicated area and yes, they intended to use it for another cool application, making money.

So basically using ai to make facebook better for me.

Could it get a little creepy?

When you talk about facial recognition, people get scared.

I talked about that with yann and i asked if you are trying to balance what you are capable of doing with what the consumer is expecting and comfortable with?

He agreed strongly.

He said it is important that we out once our approach with the expectation of the user.

In the past, there were so many toys to work with.

It got a little creepy for people.

Now, we are at a more mature point where they are trying to measure things and get us on board.

Let's talk about how facebook fits into the broader landscape.

We talked about google buying nest yesterday.

Google has spent $17 billion buying companies over the last two years.

Compare that to facebook, apple, amazon, microsoft, yahoo!

-- they spent 13 ilion dollars combined.

It is extraordinary.

Do these companies have to worry more about google?

They might.

Hiring someone likeyann lecun, beside bringing his expertise on board, there's another benefit.

He is kind of a rock star among artificial intelligence researchers.

If he works at facebook, that means that all these other people who work in the field will be paying close attention.

Maybe they would like to work at facebook.

There is competition for other leading lights of that field.

Google has somebody and they all know each other.

This is another way in which they compete.

This could tie into the mark zuckerberg grand vision.

He sat down with john hennessy, the president of stanford university yesterday and he was asked if 20 years out, what is the next big thing?

Take a listen.

What will be the new new thing 10 or 20 years from now?

One of the things i think over five or 10 years will exist , just like the ability to ask more questions than you can reasonably ask a search engine today, something we are working on.

We want facebook and this whole movement of social apps to not just be about sharing moments in the day today but also really utility.

Google has been working to make search more personalized.

Zuckerberg is talking about something bigger.

There is the idea that is not so much about you searching as it is about internet services giving you things, presenting them to you actively.

It knows that you are going to work this morning.

You see some of this with google now.

It has predictive abilities and they pop up the weather.

Facebook, and google are trying to be more active presenting the information you need before you know you need it.

The cofounder of twitter came out with a new question and answer.

It uses your whole social network to answer a question you asked.

As much as the computer or the algorithm but all of your friends and the people you know can chime in.

It is that broader contextualization of data.

That's what you need with artificial intelligence.

You are multiplying effect of information and it is too much for ordinary programming and ordinary data management technology to handle.

You have to have something that is already starting to think on its own and find the right information automatically.

Why can't computers solve all our problems?

Maybe 5-10 years.

We are weeks away from the meeting of the minds.

Apple ceo tim cook will sit down with the samsung executives to talk about the patent disputes.

We will talk about that next.

? i am emily chang and this is "bloomberg west." we are one month away from the apple ceo tim cook sitting down with samsung executives to talk about the wide-ranging hadn't dispute that has been going on -- patent dispute that is been going on a long time.

We have brian hoyer with wedge partners.

-- brian blair with wedge partners.

Coming up on ? the last time they did this, it did not go anywhere.

They are still tied up in the course but i think this is a real effort to put all the legal battles behind him.

It's a distraction for both companies.

They're spending money that could be going into products.

I want to get this behind us.

They want to focus on their own products and hopefully that will happen.

Is it possible?

There is a lot of bad blood but of both parties have to come to the table with a solution in mind, it would be great not to hear about them being tied up in court.

They can then focus on what is coming next from each company.

When you talk to these companies, they say they would rather not be doing this.

They wound up in this position and tim cook has said he hates litigation.

Samsung feels the same way.

There are a lot of law firms who are very happy to continue.

That's right, many would like to see it happen.

My prediction is it will end this year and we will stop hearing about it.

Licensing agreements will be worked out and sam sang -- samsung will save a copy the iphone, let's start with a clean slate.

Both of you guys were at ces last week and saw some interesting stuff.

How impactful will it be?

Samsung came out with a connected home and you went inside.

Yes, that's a big trend this year.

It leads me to wonder what apple is doing right now.

They're not really doing anything with connected homes.

This no evidence they care about it.

With the google acquisition of nasa, google cares a lot of out about it -- cares a lot about it.

There are many other companies moving into this.

Qualcomm had a great exhibit at ces where they showed the way they see devices and appliances connecting in the future.

They are doing a new gateway that will monitor your internet traffic and home and diverge bandwidth where it's needed.

Apple does not seem to care about that market right now.

It is surprising to some people.

There is one way where apple is connected.

That's through the apps.

If you have these services and they tie into a smartphone, apple is hoping you might think of their smartphone.

Does it matter if apple is missing the boat?

The home is the fabric of everything.

It's important because the perception is that if apple is behind, they are not outwardly trying to buy any pieces of the puzzle.

They do have the apps and if we do see a television from them in the next 24 months, that could be a way they get into the smart home business.

They are certainly not going after these connected appliances.

You think the television will happen this year?

There is no evidence in the supply chain yet.

There is evidence we could see a smart watch or something wearable this calendar year but i don't think that we will see a tv this year.

Don't you think the tv industry is kind of a lousy business to be in?

It is not right but now we are at the beginning of seeing an upgrade cycle from these traditional hd tvs to 4k television that are twice the resolution.

Samsung came out with a huge one.

Lg as well and sony.

A lot of them are bendable or curved.

This is an opportunity for apple to potentially get into the television business.

There will be an upgrade cycle.

I think they will.

They play around with a lot of things that don't ever come to market but this could be one of those.

Until there is supply chain evidence, it is uncertain.

There is this idea of the connected car that we saw at ces.

Driverless cars was a big thing at ces.

Everybody is putting apps on that screen.

The little car is getting smart and taking the applications like facebook and pandora and those apps are being made available in the vehicle.

Googlers with android and apple has ios trying to find partners.

It will be a big that will ground this year.

They call it ios for cars and apple is working with 12 manufacturers that will integrate and we will see that rollout.

Google is trying their own effort.

Give me a time frame.

Cars have such a long lifecycle.

When will this be in my car?

If you buy a new car in the back half of the year, you will have the option to get a connected car.

If you buy a tesla right now, you got it.

Toyota models that can do pandora?

I am not buying a tesla.

Some cars act as wi-fi hotspots.

If you buy a new car this year, you can have that.

It depends on what car you purchase.

When you look at google and apple and samsung, how do you see them stacking up in terms of how much territory they can claim?

I think apple will win the car were this year.

They are not trying to on that screen.

They just want to be compatible with that screen when you get in the car.

Automobile manufacturers are more likely to work with them and be compatible than to let apple just completely own that screen.

Do you think they are trying to own the screen?

Google owes the screen and the area would love to own the screens across all automobiles.

No one wants them to own that screen.

It is valuable real estate.

Automakers are inherently conservative of this speaks to the apple strength with ios in that it is a reliably up dated single version operating system.

Android is a little bit more of a wild west.

You're not sure what you might get in the automakers say they like dealing with one company.

That might to the apple advantage.

Let's talk more about 3-d printing.

Am i going to be wearing 3-d printed close?

In 10 years, i think you will be doing some of those things.

At ces, a lot of the stocks moved last year into 3-d systems.

They were up 100%. what was different about ces is you got a glimpse of the whole ecosystem.

It is not just about their balance sheets.

There is a whole ecosystem of companies working on the 3-d scanners.

They are working on the software to make it easier so you can have the option of buying a 3-d printer in your home and making an iphone case or a watch or earrings.

Where is the tipping point?

Is it this year?

We don't know but it is getting easier and cheaper to buy these machines and use them.

How much did they cost?

You can buy a very good one for $1000. it can make anything in a small form factor.

For $500, you can buy some mediocre ones.

Makerbot has a few stores here in new york and one in boston and you can see what's possible.

I'm sure we will see more of those stores across the country.

It is an important trend for this year and the next three years.

Brian blair, you will stick with us.

We will be right back with more of "bloomberg west." ? welcome back.

Let me bring in jon erlichman.

You have got the number that tells a whole lot.

What do you got?

It's 105.5%. we don't round up.

Idc estimates that the growth in windows-based tablets will be more than 100% this year from last year.

There are not a lot of windows tablets out there.

They estimate the number will get up to around 50 million so that will be small compared to the android tablets.

But that would be a bigger percentage growth.

Before we get too excited, when you start from a low race, you can only go up.

Hell of a job at microsoft.

The units are very small, 50 million units this year, i'm surprised to hear that.

That sounds very lofty.

It was an ipad holiday and nobody i know was buying a windows tablet.

They are coming down in price so there will be growth but 100 % growth is not meaningful.

Are we looking at units sold units shipped?

Many of these companies tout how many units are in the channel but we don't know how many cell.

I have yet to see somebody with a surface tablet.

I have seen it once or twice.

It is like sasquatch.

Even though they are small, we are seeing some improvement in the numbers when it comes to windows eight tablets.

Are they going to become a real competitor at any point?

What is likely to happen is they have an opportunity to take share outside the u.s., maybe outside of europe.

There are still a large global new york -- market for computing products and if they can get down to the 199 dollar price point, there's an opportunity in southeast asia and china and india were tablet penetration is relatively low.

I don't see an opportunity in the u.s. if you look at the par desk performance of windows mobile in latin america, it has been -- it is number one in argentina.

It has been doing well.

Blackberry has done well in indonesia but they have 200 million people and it's an important marketplace.

That's the place where microsoft will gain share with their tablet, they will have to look outside the u.s.. this is an ipad country.

Inside businesses, that's what microsoft is going for.

The large majority of tablets are being sold at the consumer level but this is something to watch for.

Inside the it departments, that could be where the microsoft opportunity lies.

There is no android in the meaningful enterprise.

I don't think that will change.

All the security arguments are old news.

Those don't matter anymore.

I don't think windows is that much of an opportunity.

I think the ecosystem is changed a little bit.

When microsoft made most of its success, all it had to do was convince those it managers at large corporations that this is what you need and you push it out through their employees and it is now reversed.

Employees are showing up with their devices now.

Workers are bringing the devices into their manager and asking them to support this.

Where does this go?

Companies are dealing with security but also creating an integrated experience.

If people like ipads and iphone4, what do companies do?

Companies have to coalesce around an operating system so you have three choices.

Apple is strong in the last 24 months and that will continue.

We saw that in the back half of last year was apple moving into the enterprise in a meaningful way and supporting that.

Windows is hobbling along as the pc market continues to decline that android is not there in any meaningful way.

Brian blair and sam grobart and jon erlichman, thank you all for watching, we will see you tomorrow.

?

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

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