? live from pier three in san francisco, welcome to "bloomberg west," where he covered technology and the future of business.
I am in for our host.
Apple had a 13% jump in iphone sales, the 12% rise in third-quarter profit in a year-over-year races, and the ipad is starting to be an area of concern for some.
Kobe bryant looking to the tech community for in -- inspiration as he tries to expand his brand.
He talked about how he finds inspiration by cold calling people like arianna huffington and even oprah, and president obama hits the west coast for some major fundraisers, including one from silicon valley.
We have more from hillary clinton and rand paul, playing -- paying attention to the community.
In microsoft and apple have their orderly report cards.
Sales were strong, but it certainly hit the bottom line.
We will talk more about that in a moment, and let look at apple and their fiscal third order results.
A 12% rise in net income, sales up six percent, more than $37 billion.
Ipad sales falling for the second straight quarter, subquestion is, are these good enough for now?
And we have a guest in the newsroom as well as in minneapolis.
Both of these guys have been covering apple for sometimes.
What was the big thing that jumped out at you, if anything?
The gross margin was much better than expected, and that was a huge concern months ago, so that is better.
And then they have a new product line, new categories, products and nurses in the backend of 2014, so they started this almost one year ago, and this is a critical window now in the next six months for them to get some of those products out, so i think that is the real take away.
Let me ask you about gross margin.
That was a number that jumped out at me, as well.
I would think it would take a big hit because of the new products coming out.
We think apple has a propensity to guide conservatively, so we are not overly can turned with this guidance.
Of course, gross margin was a great number.
Going back to your western, cory, was the number good enough?
More importantly, it was a good result.
Apple issuing the best eps, and it is coming at a time when its key competitor in the android community, samsung, is in a state of contraction.
I was surprised that these iphone sales increased her teen percent year-over-year.
Gee, with a new phone coming, everyone knows, like where you are reporting, you think sales would have fallen off a little bit.
Well, they did not, and it is proof that apple has differentiated rotted in the marketplace, and you also find them succeeding in emerging markets, and you talk about the brick countries, and in china -- the bric countries.
We are going to get those new iphone 6's, and we will continue with other products, like the iwatch, and i think that will be great for apple.
Why were the sales lower than the first quarter of 2012? i think that the speed with which the ipad took off in the last four years was a little bit better than what people expected, and i think they have essentially saturated their key markets, the u.s. and western europe he and the growth in ipad was still strong in emerging markets, but i think at the or, they hit a saturation point.
The next logical step is one of two avenues.
One is to go to the enterprise route, really push this ibm experience and relationship to try to increase penetration there, and two is maybe they go a totally different direction.
Maybe they actually move away from the ipad, and as they come out with this tablet with the 5.5-inch screen, i think they are willing to make that transition.
I think they're willing to sell a $600, seven hundred dollar iphone and give up a $330 ipad.
I have my notes so that i can look at them when i come back from the air, including my tweets, 225 million ipads since 2010, whereas the iphone is still 551 million, so a little more than half as many sold in three years.
What does that tell us about how big the market can be?
Well, that is a great number, and that is a number that apple defined, and i actually disagree with gene.
Yes, there will be some blurring of the distinction between the smaller ipad minis and the iphone air or whatever they call it, but at the end of the day, what apple stands to do with ibm is take a bigger chunk of that excedrin $67 billion opportunity -- to take that $600-plus billion opportunity and do something with it.
Gene, what research are you doing to find it with the market might ultimately be for the ipad?
We do different surveys in emerging markets.
We look at it and to buy.
We do this also with u.s. markets, and i think if you take a look at all of those, the intent to buy iphone is high.
It tends to between 30% in emerging markets and 70% in the u.s., and those numbers keep inching up.
Despite the competitive talk, i think that is the critical focus, trying to get an edge in how the iphone is progressing.
Some other fun stuff we reported on today, every six months, we do a head-to-head test between google and siri and see which one is better, and for the first time, google just sneaked by siri, but people still want their iphones.
All right, from piper jaffray's, thank you.
And also on this day, microsoft reporting earnings for the fiscal fourth quarter, first full order, under the new ceo, and microsoft said revenues raised, with income falling, and one of the reasons it fell was because of the acquisition weighing down the bottom line.
The earnings report coming just days after microsoft announced cuts.
Joining us for perspective is a ceo from a facebook cto and microsoft watcher.
These are interesting results.
Where do you see this happening?
The announcement last week was coupled with some interesting industry news.
We saw ibm partnering with apple, which is one of the partnerships, that classic photograph of steve jobs under the ibm sign, mocking it, back when they were everything apple wasn't, and amazon was getting into enterprise collaboration software, so google invested more in this space.
I think there are two trends which are really going against microsoft right now, and the first is a move towards mobile devices, and that is dominated by the operating system, and the second is the move to the loud, and modern enterprise software now does not run on the windows operating system.
People are not running windows in other systems either.
With 365, you have got some really big components.
There was a memo.
I was on vacation, but i spent some time with the people, and they say that 365 gives us something new to sell.
I think that is true, but it also goes hand-in-hand with the fact that some startups are now playing on equal footing with microsoft.
It used to be that every computer ran windows.
They have windows servers, windows laptops, and office ran perfectly on windows, and they basically took away the enterprise for productivity software, and now people are using iphones, ipads, and whether it is other web services, it is true that microsoft has a competitive offering, that in terms of the sales channel they have now, it is night and day.
I also think the fact that people are using so many different vices now, they are looking for a different experience, which is why some are not even getting startups the time of day.
Like some people do not know what quip is.
We started off with a device application for smart phones and tablets.
We had a story on the show which talks about this and how it came to be and how they are really positioned around this word.
They were talking about it today on the conference, as well.
Such a big focus for them.
It has been great software historically.
I think the only idea is if it is optimized for the pc, and the retired one item recently.
The platform shift happening underneath office, so now, people are on their phone way more than they are on their pc, so these are becoming less important, not because office is bad but because our usage and habits are changing.
I think because of that, the window is on the decline.
It is not going to go away, but pc shales -- sales should not be flat line.
Going up this quarter and down next quarter.
People are maintaining it.
The growth areas, tablets.
I think for microsoft, a place where they can actually deliver software across this platform is probably in office.
It is a typical interrater's -- innovator's dilemma.
I think it is a start -- a smart strategy.
It seems like there is a lot of work for improvement in the world with e-mail.
I was driving in yosemite valley, and i found 370 e-mails the other day, so i feel that e-mail has a long way to go.
Thank you very much.
Kobe bryant playing basketball in l.a., but he leans on the tech community here for advice.
That story, next, on "bloomberg west." ? ? you are watching "bloomberg west." i am cory johnson.
Kobe bryant is gearing up for a film that zeroes in on his inspiration, with meetings from everyone from oprah winfrey and others, and we caught up with him, and we are joined from now with an l.a. icon.
It was really interesting, cory.
I think whether you are a ceo or a star in the mba, you need to be dedicated.
I do not think anyone has ever questioned kobe bryant's dedication, and this coming out later this year is not really the story of kobe bryant.
It is more about what gets you inspired, who inspires you.
Here is a bit more about that.
I look inside and say, ok, what was the genesis for me?
Who inspired me to get to this point?
When i face adversity and look at this challenge and opportunity, where did it come from?
Who did i learn that from, and that is what this film was really about.
It was about a kid seeing the film and being inspired by the film, being able to have muses of his own.
I think that is what it is about.
What is this process?
You pick up the phone who are leaders in industry and pick their brain?
I just cold call people, absolutely.
I cold call people, and some of the questions i asked will seem really, really simple and stupid , quite honestly, for them, but if i do not know, i do not know.
I have to ask, so that is what i do.
I asked them and learn more about how they build their business and run their companies and how they see the world.
And who are some of the people that you pick up the phone and call?
I cold called mark parker, johnny, dan wieden, oprah winfrey, recently arianna huffington, and the list goes on and on and on.
The list goes on.
Taking johnny, you guys had a conversation?
He is obviously unique in what he does.
How does he view product?
How this eve you -- how does he view it?
How is he seeing the world evenly than anyone else who is manufacturing hardware?
Because there is something going on for him the moment that he sees something to when it goes into his brain that is a different process.
I am curious to know what that is.
I spent the day there at the software giant.
Things like that.
What makes them who they are and why.
I am very, very curious about that.
And, i think, once you have that, other entities or works of art, you can draw things from that to help you be better at what you're doing, by looking for those, denominators.
How do i prepare?
How do i prepare?
How do i build my game?
And my response is it is much like he build products.
Yes, you look at this, and the end result that you want to create, but we an result of that, there are so many little things they go into the device.
It is no different than having a basketball game.
You start with what you want your game to be, what would make your game most unstoppable, and then you work backwards from there, and you start building it one piece at a time, one move at a time, one counter at a time.
That was really interesting.
What a cool -- i have watched kobe play from the beginning, but how he processes, and the notion that he can learn from technology in the way he build his game, because he does have an interesting style, not just moment to moment, but what he does throughout the game.
Yes, and you have got someone who is an interesting part of his career, at the end of his career, and someone who has been pretty clear that he does not necessarily want to be a coach or a general manager, and that sparks curiosity, and he makes an investment in a sports drink maker, body armor, and we were talking about carmelo anthony now making some investments or getting ready to make some investments in digital media companies.
Clearly, kobe has shown some interest in companies like apple.
I do not know necessarily that he will be making tech investments, but he wants to invest in stuff he understands, and he understands the world of sports.
He understands the world of sports marketing after all of the time you spent with nike.
And you caught him in a real friendly mood also.
I wonder if he is thinking very specifically about certain things.
He is obviously not wanting for cash with his career come and he has had some pretty big contracts, but wondering what he will do when he hangs things up?
He did hire a former aide arrayed executive, and i think there are interesting things to watch for.
All right, thank you very much.
Google and apple fighting for your dashboard.
We're going to compare apple and google, next.
? welcome back to "bloomberg west." think of this.
Apple and google in your car.
Apple and google are not happy on your phone.
They want to take over your car also.
I was and android, simply by plugging your phone into your vehicle -- ios and android.
For the most part, they are the same.
Your car has a display that becomes a mirror for many of the apps on your phone, things like text messaging and music services.
They will now come from this, not from hard drive under the dash.
Right now, almost every automaker in the world has announced one of these programs, and for apple and google, moving into the car is just another way to get you to use more of their services.
A do not want to lose you just because you happen to be sitting behind the steering wheel.
Others are happy because for more than a decade, they have been tried -- trying to cram more and more tech into their vehicles, and the feedback has been mixed.
The confusion learning a new interface will soon be a thing of the past.
You can also get new technology without getting an entirely new vehicle.
New features will just be the matter of a download, not a trip to your dealership.
You will also, hopefully, be safer.
Using an interface you already know, like ios or android will lead to less distraction on the road.
And then, text away.
That was our bloomberg businessweek reporter, and more of "bloomberg west" after this.
? ? you are watching "bloomberg west." i am cory johnson in for emily chang.
Hillary clinton went to facebook, twitter, and google, and while at google, eric schmidt pressed her on nsa surveillance.
Here is what they had to say.
As you know, google is quite opposed along with the other tech companies about the overreach of the nsa, and we think, for example, bugging angela merkel's phone is pretty dumb.
What is your opinion about domestic surveillance?
The number one question.
Well, yes, don't do stupid things, and that does not mean we don't need to have a system of surveillance, because we do.
I think that has to be accepted, but how we do it and how we explain it and what we tell our partners is incredibly important.
I was just in berlin on my book tour in europe, and, of course, that was the number one issue, and i said, look.
Angela merkel is a friend of mine, and i apologized to her.
It was wrong.
It should not have been done.
Listening to my conversation with my mother?
I mean, people remember that.
We were beginning to take a hard look at what we did post-9/11, and that was happening.
The president had actually given a speech before the snowden disclosures about the need to take a hard look at the legislation and how it was being implemented, so we had to do that, because i voted for things, and then i voted against things, trying to figure out how to get the right balance in security and liberty, the age-old question, and we have to do a much better job, and we have to do it in a way that does not affect our great companies, like google, because, clearly, that would be unfortunate for us.
Clinton also participated in the q&a session at twitter and facebook.
Well, secretary clinton is not the only big diplomatic name in the bay area, president obama returning tonight to attend a luncheon tomorrow in the hills in silicon valley.
$10,000. willie brown is with me.
What is this that national politicians like about the bay area and the tech scene here?
Almost more than anything else, california and the bay area are cash cows, and in particular, for democrats.
Real, quality, upscale democrats come here to get re-fueled.
And fueling the campaign coffers in election years.
But isn't something different now?
This city is very different now from when you first became mayor, largely because of the decisions you made about building different kinds of housing, more upper income housing in places, to help set the table for the growing tech scene.
In reality, san francisco has transformed itself over the last 20 or so years from being kind of like many other places in america into something very special.
A culmination of incredible research capacity for medical coverage and for health and the whole business of what do you do with the so-called internet, how do you move into the world of tomorrow.
We are now the ground zero for all of the thought processes and all of the investment and the capital that needs to fuel those two concepts.
About 10 or 12 years ago when you are trying to determine what would happen with the city, and diverting it to a military base, to some kind of business, and i was completely against what you were deciding when you made the decision to make it possible for investors like magic and george lucas, whose operation was there, which i foolishly thought was the future of this city.
Talk to me about the role of economic diversity, because you were right, and i was wrong.
What is the role of economic diversity?
It clearly demonstrates yourself by what you currently see, and you have to be incredibly careful that you don't become reliant on one area of the economy.
You have got to be prepared to diversify.
You have to be prepared, hopefully, to continuously promote modifications, creations, and new opportunities, and that is what we have done in san francisco.
The tech scene is so -- i see it or a certain rose-colored glasses because i do this tech show here, but it seems the whole world is flocking here to do technology, and not even biotech, but technology, technology in a certain way.
Naturally, they flock here to live, and they are living part of the engineering world, who are trained to deal with the internet.
The quality of life would never sustain itself or hold their interests unless there was a kind of diversity in the world of the arts, diversity in the world of entertainment, diversity in the will of health, diversity in the way of food, diversity in the way of design.
All of those things happen in northern california, and, in particular, in the bay area.
That is what makes us different.
Talking about politicians coming year, there is something not just about getting those walls are filled.
Politicians associating themselves with the future, being tech -- being seen -- as inventive of a company in many ways as google is, but politicians standing next to eric schmidt that makes them seem like they are more forward thinking?
To allow themselves to be cataloged only for san francisco for that purpose, i think you have to be careful.
A member, microsoft is in the northwest, in seattle, and that still has all of the components of a part of this whole thing.
You have to be very careful about what happens in north carolina, in particular, just an incredible kind of component that is there, and then finally, of course, new york still has its place in the sun, so to speak, and chicago is being impressive, so not only do they come here to stand next to the google guys or stand next to who it is, facebook, but they have to make sure they make the other stops.
The last presidential election, every single candidate was running an ad that showed off -- showed up with a windmill that suggested they were greener than the next regardless of their environmental policies.
A message when you stand next to mark benioff.
Keep in mind, the whole business of greenery is big-time, and believe me, it does not look as green today in california.
Visibly, as it did one year ago, because of the absence of the water from the clouds, so to speak.
Clearly, politicians have got to be careful on their green advocacy.
They have got to demonstrate that in a different way, and mark benioff, obviously, that opportunity.
But keep in mind, there is the objection to things like the pipelines that come to deliver energy.
You have to be careful with all of these things, and we politicians, in particular, coming to northern california, which is far less than the rest of the country -- and when rand paul, a popular republican candidate for president, has aligned himself with a northern california antigovernment instinct.
It has also been very important.
San francisco, in the valley, maybe not.
Is there still an element that the right could draw themselves, whether for clinical purposes or financial purposes?
Very much so in california.
There has always been incredible independence among people who did not exactly go left and who did not exactly go right.
They were not the middle of the roaders.
They were the libertarians, or they are the libertarians.
And a lot of them like technology.
Absolutely, and rand paul, rand paul spends as much time as he possibly can doing the same thing hillary clinton does and doing the same thing barack obama does.
He comes to california with a considerable amount of flair, and he is almost as acceptable from the standpoint of the goals with the tech worker as are the democrats.
I will check my wallet and make sure it is still here.
San francisco former mayor willie brown, always good to see you.
Thank you very much.
The next area of scientific exploration could be the ocean floor.
This is really cool stuff.
It could transport us below the city to find our future.
That is next.
? ? i am cory johnson, and this is "bloomberg west." and going back to our series, looking at tech and the future of transportation.
90% of life is underwater, but less than five percent of the world's oceans have been explored.
The slightest front to change that with its underwater airplanes.
It sounds like an underwater water played to me, and diving off of hawaii, mexico, and even at lake tahoe.
Our guest joins us.
A fascinating business.
But how are people doing this these days?
What's -- that is the one you just saw.
Very wealthy individuals.
You know, the yachts can explore the service, and we launched, we put one on a boat.
It is crazy.
It is huge, right?
He has a few expensive watches also.
What are some of the cool things people have done with this?
Well, you know, it turns some people on, maybe not others, but richard branson has one as big as we are.
You just look into the big eye of a predator, the way humans have never done before.
The first time i saw that, i was in a cove, working at a hedge fund, and i looked out of the window, and i saw these two guys taking what looked like a torpedo in the parking lot.
Steve jobs had just passed away, and we work in the same building.
Steve jobs was a big backer, as you recall.
Tell me how you transitioned from this business to where you did not know what was going to happen to where you are now.
Steve was one of the very first individuals.
He gave us a lot of r&d, and we are actually today raising money to build these machines for the public.
So you can have personal transportation.
You can go.
And you are doing that through crowd funding.
Tell me about that.
Series a, first round.
It is a big deal.
It is great.
And do they get a piece of the company?
How does that work?
Yes, and get nothing, but this is the real deal.
This is an equity investment.
So the crowd funding is simply connecting individuals to companies like ourselves.
It is a really good thing.
Tell me about the technology.
What is new?
What is possible now that was not possible 30 years ago?
The imagination that we can actually fly underwater.
I am sorry, and it could have been done 50 years ago, but the batteries did not exist.
Lithium ion phosphate.
If they catch fire, that does not help you.
I would pursue him that he would not want that.
Have the material sciences changed, as well?
Are there materials used that are lighter and stronger?
This composite, carbon fiber and resin, and they are actually probably five times stronger than other metals and steals -- steels.
We are building them.
Lots of shops around here.
How do you envision this going forward?
Is it the superrich guys, or is it something else?
The superrich guys are opening the market, and we will get to tourism.
We will be flying underwater.
We will see you out at the bay if not under the bay.
Coming up, well-known investors teaming up to find next-generation tech companies.
Their plans, next.
? ? welcome back to "bloomberg west,: i am cory johnson.
A venture company firm just announced their first fund of $154 million.
They have invested in 70 companies, generating $1.9 billion in net returns.
Our own emily chang sat down to find out.
We are really happy to announce today that we have closed our fundraising for sure bob -- sherpaventures, and we were oversubscribed, and we are very lucky to be able to do that.
It is a big milestone for us.
That is a lot of money.
How are you intending to spend it?
It is a lot of money.
It is a straight men about trust, frankly, in our strategy, so we worked with some limited partners, and our strategy is focused on really putting work into the opportunities.
However, we actually have an active program.
Because of who we are and our backgrounds and our strategy, we like to get involved very early with companies and go deep, and having that early exposure gives us a trend joe -- tremendous amount of information and access.
You have been an operator.
You were one of the early investors in uber.
How do you complement each other?
Who brings what to the table?
Scott really has things, and i lead the series b, and it was immediate.
There was a matchmaker, and we had met before, and i remember, we just went deep on talking about the future of uber, and we had a number of ideas that we really liked, and it was just kind of a match made in heaven.
We ended up in one year to the day of closing the deal of founders in dublin, and we wound up actually back in dublin again, and we did not go to the conference at all.
We just spent the entire time dreaming if we were to start something together, what kind of fund would we start, and that is how sherpa was formed.
At the time, we are talking about uber, and i know you guys are happy about getting in early.
Had you feel about valuations and how high they are right now?
Everyone talks about valuations, and first of all, i don't think we are in a double.
When you look at any metric, whether it is number of ipo's, valuations, revenue, number of users online, they all scream that we are very different than we were in the 1990's, so we are not in a bubble.
However, when you look at valuations, you have to look case-by-case.
When we look at our early stage, it is hard.
It should be a $4 million valuation and not a $4.5 million valuation.
When looking at a seed investment or a series a. however, even these series a's and the series b's have things available to investors that were not available 30 years ago.
We can look at the user data, the economics of these businesses, that by the time they are in series b, they are making money.
That was unheard of in a bubble, absolutely unheard of, so our valuation higher than we used to, ensure, and are we more than we used to, sure.
The cofounders of sherpa ventures, and now we have one number that tells us a whole lot, the bwest byte.
Jon erlichman what have you got?
-- 60 million.
An analyst has estimated that when apple eventually releases its smartwatch, in the first 12 months of the market, it could sell between 20 to 60 million, and their estimate is $300 a pop, and that could be some healthy cash, but obviously, we talked about kobe bryant and his visit to the headquarters in cupertino, and there was a report where it was said that apple had been reaching out to professional athletes to basically test the fitness capabilities of the iwatch, the wear and tear, and see if it is ready for business.
He can do that.
Here is one for you.
Are you ready?
18. that was the age when i met a young 18-year-old kobe bryant.
I was doing a story on high school all-stars, and there was kobe bryant on the team, and he was so striking.
Of all of the people we met, 18 years old, he gave us a great interview, even at 18, and it really captured him.
It was good stuff.
Yes, i want to see that playground.
He is a smart thy.
He is a global figure, a guy who speaks a lot of languages, and he is thinking more global than ball.
All right, "bloomberg west" on your phone and tablet, and we will we back later today, and see you again tomorrow also.