? . . x live from pier three in san francisco, welcome to the early edition of lou burke west where we cover the blue -- global media and technology companies that are reshaping our world.
I'm emily chang.
Let's get straight to the rundown.
Contractors working on healthcare.gov are getting grilled on capitol hill today, facing questions on not only why the site is so poorly designed, but whether user information is even safe.
Could pinterest be worth more than zynga or even aol e it is worth $3.8 billion.
And opening up about the model and spec on fire after hitting an object on the state highway.
Find out about the risks of the new lithium ion battery.
But first, to the contractors that built the troubled healthcare.gov website.
They are facing tough questions from members of congress.
A house committee hearing is being held on why the site is still not working properly more than three weeks since it went live.
Here is an exchange between a congressman and the cgi senior vice president.
How soon do you think it will be so that the average american can do healthcare.gov and get in without any glitches?
X i can tell you i have a team of people working around the clock -- i can tell you i have a team of people working around the clock trying to get this resolved.
I cannot give you an exact date as to when it will be completely to satisfaction.
How about a guess?
I would prefer not doing that.
I don't like to raise expectations.
And as far as website delays, there are also concerns about security.
Megan hughes has more.
First of all, that hearing is still going on.
We are in our for and it started -- we are in our number four and it started at 9 a.m. this morning.
None of the contractors are taking responsibility for the problems with healthcare.gov.
They all say that ultimately, it is up to the federal government to put all of these moving parts together and that they are responsible for the rollout.
Take a listen.
Cms has the ultimate decision for a live go or no go decision.
We are not in the position -- we were there to support our client.
It is not our position to tell the client whether to go live or not.
I want to run through a little bit about the main contractors that are getting the most attention today.
One of them, cgi federal, the executive that you were just hearing from.
That is the company, $422 million tied to the health contracts so far.
They are responsible for the software application that allows consumers to shop for insurance.
They admit that there are problems and that they have been working on it every day.
There were other contractors at the table today, a country -- a company based out of minnesota.
They are in charge of the registration component.
They say there were problems on october 1. they are also in charge of the data hub.
Getting all that information from the irs to make sure people are who they say they are, that they are income verified, but again, lawmakers are not getting answers.
All of the contractors testified today, saying they delivered what they were supposed to deliver to the federal government.
Are there any concerns that the site is not safe, that hackers could get to sensitive user information?
A huge part of the conversation today has been about testing.
We know that there were internal and external tests, but not adequate end to end testing.
And congressman mike rogers did raise the issue of cybersecurity.
Take a listen.
In less than two weeks, you're telling me that you are constantly changing code, introducing new code.
You cannot tell me quite how that is secure.
In any system that i have ever seen, two months for a functionality test is not appropriate, let alone a security check on this information.
House democrats, we have heard a lot of them saying that republicans are really not interested in fixing these problems.
They are more interested in grandstanding.
Megan hughes in washington, i know you will continue to follow this story.
We turn now to pinterest, which just raised $225 million from a bulk mutual fund fidelity investments.
It lets people share projects by pinning them online.
It is worth 3.8 billion dollars, which is higher than some publicly traded companies, like, way, aol, and think of.
The company works with businesses like target and nike.
Danny joins us from oklahoma through skype.
Three $.8 billion, is pinterest really worth that much?
Yes, i believe it is.
The beauty behind pinterest is not just the pins it, but the rich data that underlines it.
They are building something called the interest graph, which is extort narrowly valuable to marketers.
But pinterest at this point barely makes money.
They just started rolling out an advertising product.
How can we know that they will make money down the line?
As with any successful startup, at some point, they were not making money.
I think they have the right energy by focusing on user growth first.
That is what you have to do in that type of market.
I think now is probably the right time for them to start the advertising test that they are running.
But even without those tests being very mature at this point, there is already anecdotal evidence from many providers showing that pinterest is highly effective for brands and they are showing a great return.
You run a company.
It seems like interest just raised money.
Isn't it dangerous to raise money at such a high valuation, because it means down the line they have to have an even bigger exit to satisfy investors?
I'm sure that the investors did due diligence and the pinterest team knows better than anyone the path they are on.
The investors can probably speak to that better than anyone.
If you look at the history of the evolution of other major internet players, i don't think this is out of line relative to the level of growth that pinterest has seen.
You might help companies expand their presence on pinterest.
What does that mean?
Brands want to understand what is happening on pinterest.
What are companies pinning from their own sites, their competitors sites?
Who they want to connect with?
Who are their biggest fans?
We help them go through the massive amount of data occurring on pinterest everyday down to the national brands that they can use to inform their marketing campaigns both on and off pinterest.
The more successful that pinterest is, the better it is for you, right?
Yes, emily, that is true.
What do you see as the power of pinterest down the line?
Five years from now, how big a deal will pinterest be?
I think it will be a very big deal and it will be a permanent utility in the internet world.
The way you think about facebook creating a social graph and google launching to research, i think pinterest will launch discovery in an entirely new way through user interest.
And i think over time they will allow the internet to do that to a greater extent as well.
That means all publishers, all marketers, all brands will be able to better align the content and products they are getting out there with what people want.
And users in return, will be able to make the connection from desires and interests to real- life action.
What does this mean for a company like amazon, currently the world's largest e-commerce company?
I think this is an opportunity for amazon as well.
I'm sure they are looking for new ways to grow any news way -- new way to reach audiences.
I see no reason why they should not also be looking to pinterest as a potential growth general -- channel for their own interest.
Thank you for joining us.
Both amazon and microsoft report earnings after the bell today.
We will take a look at what we expect from these two tech titans next.
You can also watch streaming on your tablet, phone, and at bloomberg.com.
This is "bloomberg west" on bloomberg television and streaming at your tablet, phone, and at bloomberg.com.
Two tech heavyweights report earnings tonight, microsoft and amazon.
Microsoft lost $7 million, while michael -- while amazon's profit was nearly $7 billion.
Jon erlichman joins us from l.a. to explain.
It is pretty incredible.
Here are two companies we talk about so frequently on bloomberg west, and yet they could not have more different financial stories.
Let's start with microsoft.
It gets kicked all the time.
There are worries about its future, but here is a company that consistently has been generating between $5 billion and $6 billion in profit.
Compare that to the amazon story.
You've got to replace b's -- replace billions for millions.
And two of the quarters, the company has actually lost money.
Take all that information and compare that to what is happening in the stock market where investors have a little bit more love over the course of the year for amazon than they have microsoft.
What is going on?
The story really has been that here is a company in amazon that is building for the future.
They spend a lot of money right now, which hurts the bottom line performance, but when the company performs its results, you have to look at how much revenue it is generating.
It could generate more than $17 billion.
Look for that number.
In the case of microsoft, it is what is happening with the windows unit.
How is the performance their?
We talk about the struggles the pc industry is facing and how that affects software sales.
Those are the two big things to watch for when each of the company's reports their latest results.
And both of these companies have dreams of hollywood.
What might we learn about that?
It is always nice to get these tidbits when executives speak every quarter.
You are right in the case of amazon.
Amazon is doing original shows, just like netflix does original shows.
At the end goal is to get people to shop more with amazon.
They get more people to subscribe to amazon prime.
And in the case of microsoft, here is a company that is also working on developing shows that would be available through xbox in a way to potentially drive more xbox sales.
The end goals may be a little bit different, but it is a similar idea.
Let's make shows that will ultimately lead to higher sales in our respective businesses.
It has been a busy time in redmond, washington, as microsoft searches for a new ceo and gears off -- gears up for the holidays.
I am joined by a senior analyst at bloomberg.
I want to talk about the ceo search.
Are we expecting any updates on that from microsoft today?
They have said they want to fill the position by the end of the year.
I don't think they're going to announce anything.
If they have not announced anything after the close, i don't think there will be anything on the call about it.
What can you tell us about potential candidates?
We have heard names like the ford ceo, even sheryl sandberg of facebook.
It looks like there is a lot of discussion about elon being the frontrunner at this point.
But i do not know how sensible it is to bring someone who is 68 years old to a technology company.
It is anybody's game at this point.
It is possible it might be someone who is in line with steve ballmer's strategy right now, to go all in with the consumer side as well as the enterprise side.
But it is a very tough call.
It could be anyone.
What are you looking for in the numbers today?
On the consumer side, the one thing we will be focusing on is the traction that it is getting in the marketplace at this point.
There was all of this hoopla about the software not being there or the price being too much.
They have launched a new upgrade and the price has been cut down.
We will see what the market share the software is getting out there.
On the consumer side, we also want to find out how the consumer pc cycle is doing.
On the enterprise side, the cloud revenue, the money they will generate there will be one of the most important things focused on.
Speaking of the mobile push, microsoft and nokia unveiled tablet earlier this week at the same time apple was unveiling its ipad.
And the piper jaffray analyst told us nobody cares about microsoft's new mobile devices.
How big a challenge will it be for them to become a third player in the mobile market?
That is the biggest bet that steve ballmer is betting at this point.
You readily mention they are the third player in the market with a very small market share.
But you have to remember they have a huge presence in enterprises around the world.
These enterprises are not going to be buying a lot more pcs to to three years from now, but they might be buying tablets.
One of the things you have to think about is the customer has applications that are built -- for a lot of these companies, they are built on windows.
It is not that the service is not going to do well.
There's a strong possibility that it might do well in the enterprise division.
Thank you for joining us.
We will be all over microsoft and amazon earnings in the late edition of bloomberg west.
The inerrant investor carl icahn is at it again.
He sent a letter to the apple ceo, tim cook, pushing for a $150 billion buyback of apple shares.
Details, along with a heated response next.
? this is the early edition of bloomberg wes.
I'm emily chang.
The pentagon is holding a major cybersecurity contest, calling it the cyber grand challenge.
Darpa will pay as much as $2 million to the winning team for creating an automated system that would test for vulnerabilities.
And then come up with immediate security patches and apply them to computers.
The contest is scheduled to run for roughly three years.
Activist investor carl icahn is pushing for a $150 billion buyback of apple shares.
He addressed a letter to tim cook, urging the company to immediately begin to offer to buy back stock.
It follows the meeting the to me -- the two men had in late september.
Jon erlichman is back from l.a. with more.
There are a few things we know.
We do know that apple has a lot of money, a lot of cash on its books.
We also know that apple has earmarked a lot of that cash for shareholder friendly stuff.
$100 billion over three years is going back to shareholders, $60 billion of that indirectly through stock buybacks.
And carl icahn owns a lot of apple stock.
And he would like to see $150 billion spent on stock buybacks.
But beyond that, there is a very big question, which is, what is the best use of apple's cash?
We cannot give the exact answer to that.
There are people who sit around boardroom tables wondering about that.
But we do know that apple could be needing cash for all sorts of stuff, for acquisitions, expanding in china, litigation with companies like samsung.
And maybe for that next big thing that we do not know anything about yet.
The other issue for apple is that if it were to hypothetically spend all of its cash on a stock buyback, what message would that send about a company that has been seen as at the forefront of innovation.
There are many different moving parts tied to the story that ultimately take away from the logic that carl icahn is putting forward, because of what apple is as a company.
Not everyone agrees with him.
Today, pimco's bill gross tweeted that he should leave apple alone and spend more time like bill gates.
If he is so smart, use it to help people, not yourself.
It made me think of when tim cook was in front of lawmakers and john mccain decided to ask tim cook about getting all of those update alerts with his apps.
You know, the lighter moments.
People have a soft spot for apple and i guess you could include bill gross in that camp.
At the end of the day, the most important views are going to come from the other apple shareholders.
Remember, when there was another battle between another activist investor and apple, david einhorn, a lot of the pension fund came out and share their views.
Watch for comments when it reports its results next week.
It is time now for on the market.
Julie hyman is in new york.
Let's get you caught up on where stocks are trading right now.
We are seeing a resumption of the rally today.
After having a pause in the rally yesterday, we are up against -- up again today.
I want to point out to you a mover that really just again moving in the past hour or so.
Those shares are plunging following a muddy waters report -- remember, that is a firm that targets what it sees as questionable accounting.
It said that the developer of security software has "the dishes revenue -- "fictitious revenue." it is a chinese company.
Those shares are down more than 25% right now.
We will be back on the markets in 30 minutes.
? this is the early edition of bloomberg west.
I'm emily chang.
You can also catch us at our later time.
German chancellor merkel said eavesdropping on allies is unacceptable and that trust between germany and the u.s. must be one back.
This after a german magazine reported that her mobile phone was bugged by the nsa.
The white house has denied that the u.s. listened to her calls.
Two americans were kidnapped by pirates off the coast of nigeria.
They were on board a ship when the pirates attack.
There is increasing concern about the security situation in the waters off the coast of nigeria.
French suckers today will not lay a round of league matches next month in protest over higher taxes.
There is a 75% tax on earnings over one million euros starting next year.
It will be the first french soccer strike since the 1970s. the debate over the automotive world has not been over whether alternative powertrains would drive cars, but which technology would dominate.
Now every carmaker is going green with plans to put batteries next to gasoline engines.
Matt miller has this look at how ford is leading the charge.
The future is electric.
From toyotas prius to test the -- to tesla, tests are being run on car batteries.
Even porsche and for rar making million-dollar electric vehicles.
But one company is leading the charge when it comes to in sourcing battery production.
We launched last year in 2012 in june.
We made over 100,000 batteries, but we are continually changing the process and the product.
Export is building its very own batteries on its very own assembly-line in michigan.
At this point, the battery is basically fully assembled.
Even elon musk's tesla gets power from panasonic, the same company that makes batteries for the toyota prius.
Manufacturing is flexible enough to build cars running on plain old gas as well as hybrids and plug-ins.
They are all on the same line.
We can add a shift.
There is room to grow along with the industry.
If the demand is there, we can grow with it.
Ford is not exactly selling out of its eco-friendly alternatives yet.
Sales of hybrid power trains make up 16% of toyotas global sales, but only around two percent of ford's are running on green energy.
But with the investment in cutting edge battery technology, the automaker is ready and waiting for people to start buying electric.
I think we will see more plug-in hybrids like the fusion, and as the battery cost and size of the battery comes down, and we have more of a structure to charge, then we will see more and more.
That was bloomberg's matt miller.
Sticking with electric vehicles, shares of elon musk electric car maker tesla have taken a steep turn this month after video of one of its sedans catching fire went viral.
Them -- the company has its market cap he wrote significantly.
According to an investigation, the fire happened after the bottom mountain battery compartment was struck a piece of metal.
The incident has prompted questions about the safety of lithium-ion batteries.
Elon musk defended the battery technology, writing that fires are more common than gas powered vehicles.
The ntsb says it is gathering data on the accident and has not decided whether to open and formal investigation -- open a formal investigation.
Bloomberg sat down with elon musk in london and asked him about the incident.
And has a six millimeters thick plate on the bottom of the car.
It punched through that armored plate and into the battery pack and crushed several of the battery cells.
It took several minutes, but eventually the cells caught fire.
And a few of the modules in the battery pack burned.
That is what happened.
A driver on the side of the road will get out and call the fire department.
There were no injuries or anything.
And i should point out, he bought another model as.
The boss of bmws and he was "startled" by the fire.
Why do you think he was startled ? i don't know, because vw has houses of car fires per year.
But he is investing a lot of money in this technology.
He says his is safe.
I don't know what indication that is.
Vw has literally hundreds of fires per year.
I do not know i would be startled by one in an electric car.
With the boeing story, do you think you will get extra scrutiny as a result of the technology being used?
Clearly, you are not a dreamliner flying at 37,000 feet will stop but nevertheless, do you think the technology is more in the spotlight right now than it has been?
Whenever you have a new technology, there's always more attention paid to it than current technology.
And the standard is higher as well.
The issue with the boeing battery pack was not that it caught fire, but that it spontaneously caught fire for no reason.
That was the issue.
There was a reason, but it was not as if it was a crash or someone shot it or anything like that.
It was just in a normal flight and it caught fire.
Here in our case, it was hit by a large piece of metal at high speed.
If that were to have punctured a gasoline tank or supply line, the car would have been in a conflagration.
It would have burned to the ground.
Elon musk speaking with bloomberg.
Still ahead, we check in with braintree ceo one month after his $800 million art was asian -- $800 million acquisition.
? this is bloomberg west.
I'm emily chang.
Ebay shocked the mobile payment industry when it announced it bot braintree about a month ago.
It will give paypal access to their app, which lets consumers make payments on mobile devices.
For more, we have the braintree ceo.
Paypal has said you will operate separately.
How is it going so far?
Great, so it has not closed yet.
It is too close somewhere near the end of the year.
But it is going really well.
We are excited.
There is always concern when big companies by small companies that you will not have the autonomy that you had before.
What makes you think you really are?
We still feel like we have a lot left to build.
One thing that has been interesting is our vision for how mobile commerce plays out is in line with how david and the paypal team were thinking about it.
The fact that they were willing to give us independent and collaborate with paypal is why this is interesting for us, because we feel that we can build the future of mobile commerce the way we think it should play out.
If you think you have much more to do, why did you sell?
Some may think it is a little early.
More than anything, we want to help enable this next wave of mobile commerce.
We think we are very much in the first inning of this.
Art of why we teamed up with paypal is that we think there is a lot left to build.
In the next three to five years, e-commerce is going to change radically.
Commerce will change radically.
There is a narrow window to reshape the way people interact with these experiences.
We are doing a lot on our own and we can do a lot more.
It is about how we build the things we want to build in this narrow window where the market is turned upside down.
That is more the impetus behind this, versus whether we sold too soon.
This is the beginning of all we wanted to build.
I saw the information on the day this deal was announced and i found the criticism that paypal is behind when it comes to developers, when it comes to startups.
And he said, yes, we did.
Here is what he had to say.
It is hard to argue that we were not on top of our game with developers for a couple of years.
Now we are focusing very intensely on coming back.
Definitely, the braintree deal is part of us fell awaiting our comeback into the developer scene.
You have competitors out there.
Is there any concern that being part of a bigger company as bureaucracy and will slow you down?
We spent a lot of time working through that before the deal to know that we could still build product the way we wanted to do my due management the way we wanted to, deliver customer service, all those things.
We had a bottom line and we feel good about that.
How do you see mobile payment laying out?
There are so many in the industry, square, google wallet, strike.
You guys to a different part of the business.
How does this look five years from now?
Five years from now, e- commerce on mobile devices is where traction got started.
We do $12 billion just on mobile alone overall.
Part of that is as e-commerce meet mobile, it works fundamentally differently on a mobile device.
Five years from now, you'll show up to a checkout experience and have an entirely different set of players around that.
Those players will be about who can bring many merchants and consumers together.
Who are those players?
Paypal, bit mocha and other players.
You mentioned google.
And apple, certainly, people speculate about what will happen there.
Facebook has launched a commerce product.
You will not show up and have to enter in all kinds of information.
And it is not just about a purchase experience, but your overall commerce experience.
You show up to an application and you expect that it should know enough about you not just so you can check out in a virtual way, but show you things that are relevant to you and it knows what you are interested in.
You do not have to tell it.
What about square?
Is a huge player in five years?
We know that they are traveling, especially internationally.
They are a big player today.
I think they have a very different angle on this than what we do.
They focus on e-commerce rather than how mobile plays for the commerce.
They are on the physical world.
They are a meaningful player today.
I'm sure they will continue to be.
Thank you for joining us today.
Great to hear how it is going.
And tune in for a bloomberg west special series on sharing the economy all next week.
Nothat is next week right here on bloomberg west.
The set-top box maker, tivo, has seen revenues rise.
We ask them how it is going next.
? this is bloomberg west.
I'm emily chang.
With the rise of services like netflix and video, tivo could have trouble ahead.
But it seems it is experiencing a growth spurt.
Jon erlichman has more.
A lot goes into a companies growth story.
In the case of a company like tivo, litigation gets lots of headlines, but they also track tv watching trends well.
The ceo tom rogers joins us from new york for our driving growth series.
You became ceo in 2005. that is the same year and gadget put out a story with a headline, tivo deathwatch.
Eight years later, your sales are growing.
What was the first thing that you try to do or did as ceo?
A lot of people thought tivo was on its last legs, and we set out to disprove that.
That is what we have done.
There are many who thought we were going to go away.
Only six weeks ago, we announced that we would be seeing sustained profitability with over $100 million of edith our -- of ebitda going into next year.
Obviously a different story from eight years ago.
When i started to do was to say, tivo change the landscape of television, but there were many dvr's out there that try to take our birthright.
We had to make sure that we were adequately compensated for what others did to our technology.
Over the course of the last eight years we have won a lot of patent litigation and gotten 1.6 billion dollars off of a handful of lawsuits to have the cash to fuel our growth.
But then we had to decide how we would innovate and revolutionize tv all over again.
What we saw out there was a real opening.
A lot of people were coming up with ways for people to get more conflict -- content.
You mentioned netflix and amazon.
Other people were looking for ways to get broadband connection to the tv.
No one figured out how to bring it all together, how to bring regular television, traditional tv, so-called over the top television, live television, recorded television, put it all together in a single experience and make it easily searchable so that you only need one box, one remote.
And then bring a degree of personalization, so that as you brought all of that personal choice into the living room, there is a simple way to get at it.
And the same time, you make it personally relevant to them, whether on a mobile, a phone, and ipad.
And then you customize it just to their interest.
That is where we set out to grow.
And we can show people two of those points you are speaking to through what is happening through your story.
You went from negative growth three years ago to high single digits last year and now basically in the 30% range.
Looking ahead, aside from r, the cable -- from romeo, the cable giant, some are wondering if they can see more cable devices and less horizon.
Can you speak to that?
Our biggest operation is birds and media in the u.k. and -- virgin media in the u.k. we have been a huge hit over there and are continuing to work with liberty global to make that very successful.
Tom, we've got to leave it there.
We always recent -- appreciate your time.
? welcome back.
I'm emily chang.
Coming upon a later addition of bloomberg west at three p.m. pacific, 6 p.m. eastern, google class may be months away from hitting the market, but it could face increased, edition from samsung.
It is 56 cafiero, which means bloomberg tv is on the market.
Julie hyman has more.
We are seeing stocks trade higher.
That is helped in part by some of the earnings reports that are around.
I want to highlight two stocks for you.
First of all, pulled the homes shares surging -- pulled homes --pulte homes surging.
And this one last night said it would the cutting up to 1500 employees.
In addition to all of these numbers, you've got the medical device tax, the potential medical device tax that is putting pressure on the companies.
Is that what the right -- the restructuring has to do with?
I reached out to matt taylor over at barclays and he said the restructuring should be viewed as a positive.
He said it is the latest in a broader restructuring program that boston scientific announced a few years ago.
There is a lot of pressure on this sector right now.
You and i have talked in the past about growing competition.
For example, in 2006, johnson & johnson was the lead maker of stents, but they gave it up after being edged out.
The other pressure is coming from the hospitals that buy these devices.
In the past couple of years, we have seen the power shift from the doctors to the hospitals.
Doctors used to be able to choose which brand of artificial knee or hip or stints they wanted to use.
Now the hospitals go to the manufacturers, they cut the deal, and they tell the device -- the doctors which device to use.
How big a bite will this tax have?
The medical device tax is a flat 2.3% rate tax on sales.
Austin scientific does actually stand to take the biggest bite out of its earnings.
Courting to data from bloomberg industries, boston scientific will see 7.5% white dotted earnings this year.
That is nearly twice the others.
It depends on the portion of sales for these companies in the u.s. and what their profit margins are.
The trouble for boston scientific relative to their rivals is that they have very thin margins.
That is partly why they are going through a restructuring.
And one of the things up for debate has been repealing that law.
Where do we stand on that right now?
Is it still a chance of happening?
Republicans were trying to