>> live from pier 3 in san francisco, welcome to the late edition of "bloomberg west," where we cover the global technology and media companies that are reshaping our world. i'm emily chang. our focus is on innovation, technology, and the future of business. after barely more than a year on the job, yahoo's coo is leaving. he joined in the fall of 2012, but he is out according to an sec filing that just came in. this is someone that marissa mayer brought in. she was focused on building the talent.

we reached out to yahoo for a statement. they said that de castro will be leaving effective thursday, january 16th, 2014. jon erlichman joins us from la. >> this is someone that marissa mayer has known for a long time. she knew what she was getting. what went wrong? >> it has a lot to do with performance. in the world of sports, you see these high-profile signings and then the performance is not great. the coach has to say, do we sit the person or continue playing them just because they have a big pay package? the decision by marissa mayer was to say, i will go with the team that i have. yahoo's story has been one with a lot of positives. they have been red hot, marissa mayer have done a lot of

interesting acquisitions. she has brought in fresh talent. they have brought in people like katie couric. they have a very valuable asset in ali baba. when you look at their online performance, you do not see a lot of change. when they last came out with their quarterly results, there was disappointment among analysts about performance. there was a decline. in the most recent quarter, 420 million. the story has been a similar struggle. the search relationship between yahoo and microsoft, they are still trying to figure out how well that works. the bottom-line is that google is the big search engine in that category. they continue to be dominant. yahoo is trying to figure out its story. the performance is not there.

de castro is not there either. >> let's talk about the people she has added in the last year. who are today, and how does she fill this role? >> she likely feels ok with the team in place. maybe there is not a need to find someone else because of the people who been taking larger roles. ned brody, who came from aol. jack reese, who is playing a large part in the strategy. ken goldman, the senior player on the team. he has that cfo role. these people, they are definitely in her inner circle. what is interesting is that sometimes you bring in new people and say, we will do something differently, but yahoo has gotten rid of someone who was doing what de castro was doing.

now he is gone. it is a tough business. >> de castro is out as of tomorrow. thank you so much. one such company is waiting for president obama's announcement on nsa reform. he's expected to reveal changes to how the nsa's stores and collects phone records. these reforms are expected to be the most significant changes since the september 11 attacks. i want to bring in phil mattingly, joining us from dc. more revelations are reported in the new york times that the u.s. government cannot only spy on computers that are connected to the internet, they can spy on computers that are not connected to the internet. what are we to believe now? >> the more these revelations come out of u.s. national security, the more you look at it and say, "wow."

what the president will try to do is a couple things. he will try to set the stage. these programs are necessary and they protect the u.s. intelligence services are doing their job that was allowed by congress. however, we are going to announce some curbs. they want to allow some public access to the secret fisa court. and they want to end the program on angela merkel. the bulk collection of telephone records, we're hearing from officials that this decision, what they will do in terms of where they store that data and continue to collect that data involved, will be left up to congress. what we see on friday may actually just be the start. congress will have a lot to do with the direction of how these programs go.

>> this could just be the start. a silicon valley venture capitalist that we talk about a lot has been on a tweet craze lately. he tweeted 18 times with the nsa. he said -- my question to you if, after the president becomes involved friday, will we still be talking about the same thing? how long will this go on before it is resolved to any extent? >> all you need to do is look over to russia and look over at edward snowden. how many documents has he given up to different journalists? it is well over a million, maybe 2 million. he says that there is plenty more to come. this is not going anywhere anytime soon. >> phil mattingly, thank you so much. we will be following that. we will be right back with more

"bloomberg west" after this break. ♪ >> we are in new york all week

long with sam grobart. we have big news today. it is out of china. apple and china mobile have officially announced that they are together. they will start selling phones this friday. >> this weekend. >> this adds potentially 100 million subscribers for apple. >> huge deal for apple. it gives them a potential boost as they are seeing their market share numbers in a little while maybe and a little down. you can put this in context. the largest wireless carrier in the u.s. is verizon. they have 100 million subscribers. the 700 million figure for china mobile could use other phones,

but conservatively, it is twice as big as verizon. >> the other big deal is that apple only has 10 stores in china. they are trying to increase that number. this adds 3000 retail outlets where they will be selling the iphone on china mobile. >> apple stores have always been very successful. china is a very big place. tapping into that network of retailers, 3000 of them, is huge for apple. it will get that phone out into the country in a way that is more than just the big city or the coast. >> and when it comes to cost, that has been a big problem for apple. the iphone is so expensive. over $800 for the iphone 5s. $730 for the iphone 5. >> tim cook will tell you that it is not the cheaper one. it is just a different one. there's a significant difference between apple and the competition.

>> xioami makes phones that look like iphones. i spoke with the head of baidu about screen size. robin li says the chinese people want bigger screens. >> not just chinese people. >> i spoke to robin li specifically about apple and this is what he had to say. >> they have experienced here in the u.s., but in china, the chinese characters are very different from english. you need a bigger screen to do that. apple does not allow good search engines to be uploaded on the app store. >> i did not realize that part

about chinese characters and the difficulty of the language barrier. >> it is a closed system and it is hard for them to adapt. >> when it comes to the competition, there is samsung which is the leader. apple had a lot of company nipping at its heels. a lot of it is cheaper. huawei is another company that is offering smartphones at a much lower price. >> they are doing better than apple right now. we have the coo of huawei is joining us today from san francisco. you are pulling back on telecom, which is your core business in the u.s.. i know you have some 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? >> we are not leaving the u.s.. on the contrary, we are growing our business. there are a lot of views on the media and interviews. when you are a $40 billion company and you are involved in innovation and technology, and when you are caught in the crossfire between two large economic powers, it is hard not to get sentimental about it. the truth is that this is one of the greatest markets in the world. we like it here. >> does that mean you will continue to sell your telecom equipemnt to u.s. businesses in the united states? >> yes. i am responsible for the enterprise business. we mainly focus on the i.t. market.

we have engaged a lot of partners and i.t. professionals in the u.s. about our product line. so far the reaction has been extremely positive. many people would like to partner with a supplier like huawei which has a broad bottom line. they can do computers and networking. they also have a solid financial. >> if i may, one of your main competitors in the u.s. has been cisco. you trailed 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 that you are able to offer? are they surprised? all this time they have been paying more than they perhaps wanted to?

>> what we focus on is the next inflection point. we do not necessarily focus on our competition. we think that the best competition is who can win the cloud computing race. there's a huge growth in cloud computing, in big data. the traditional i.t. equipment is designed for on premise data centers. we need a company with a large ability to do cloud computing and to reinvent those equipments and adapt to the cloud infrastructure. that is what we are good at. the network, the infrastructure, and cloud computing infrastructure -- we have been the provider for 50 top world carriers. we are ready. >> i want to ask you a bit about what has been going on in the

united states, the revelations by edward snowden, the revelations about the extent of the u.s. government surveillance policies. has that impacted your business at all? are companies out there saying that they are worried about the u.s. government's relationship with some of these technology companies that we have been working with? >> actually, on the contrary, we will give everyone perspective that we need 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. meanwhile, for businesses, we are a private company. we are trying to innovate. only 14% of our revenue is -- it makes the conversation

[inaudible] >> thank you for joining us today. coming up, we will talk about artificial intelligence. you got to speak to a new head of design at facebook. >> i went right into his lab. >> you will see more of that next. ♪

>> welcome back to "bloomberg west." i am here with sam grobart and i want to bring in jon erlichman. we have an important story out of washington. it is about net neutrality. it is a very important story. a court has ruled that potentially carriers could charge more for certain kinds of

internet access, bandwidth hoggers like netflix could be in trouble. what does this mean for netflix? >> you have seen the stock market reaction. netflix shares are down a little bit. is the all-you-can-eat, $7.99, going away? not just yet. everyone loves "house of cards" and "orange is the new black" but the numbers from methods and others would suggest that spending an hour on netflix every day, even though it eats up a lot of broadband, is nowhere near the amount of total television that people are watching. it is something that everybody in the industry is thinking about. >> i'm curious to know, there

has been a lot of talk about this. what would this do for competition? generally speaking, the internet has been open. now we are going into a tiered model. what does that mean in terms of established internet companies and startups? >> that is a great -- if you think about the lobbying power of all of the internet giant in terms of getting their way, that is a whole other story tied to this. if you think about the companies that have come and been able to set up shop quickly through something like amazon web services. what they have to pay changes. at start up does not exist at all. it is a bad thing for a big player like amazon because maybe they do not get the benefit of their amazon web services player. when you think about cable versus the internet, you heard me talking about lands for internet tv. intel was thinking about that.

maybe amazon goes down that road. if all of your tv, cable is coming through the internet and the internet companies are offering it for a lot less, cable companies hate that. they will fight you. the net neutrality title is boring. but behind this, you have a huge lobbying effort. it is a battle between the traditional tv world and the internet world. >> we're talking about tv and cable, and net neutrality advocates are facing this nightmare scenario. internet browsing is one tier, facebook and twitter is another tier, and then you have netflix, youtube, spotify, the most expensive on the top. this could have major implications for everyone. >> we always talk about the battle with the biggest players. sam raised a good point about the smaller players. a company like netflix, even in that worst case scenario, could probably afford to pay a little bit more.

whether they are paying verizon or whoever -- they are paying them a little more. you could make the argument that those names that you mentioned, whether it is facebook or netflix or youtube, they have become more powerful because of their pricing advantage. they get to scale before everyone else. at the end of the day, it will be positioned -- look, the consumer should not have to pay more just because they are watching a lot. this comes down to how much you are actually gobbling up. how much broadband you are actually using. if you watch eight hours of television a day, netflix diehards are watching a lot, but they are not watching that amount. if the technology, and companies like netflix think about going from hd to alter hd, and they also think about compression technologies -- they are not

eating up bandwidth. they are thinking about that. maybe the technology allows for that concept to come to you without having this sort of stop in the road where everyone is wondering about pricing changes. >> might this lead, possibly, to sponsored access? from larger media companies, which could give them an advantage. an established company may say, don't worry, we have it covered. >> i think this opens up the door for a lot of to put their brand or message on this and position themselves in that way. you go back to the example of amazon web services which has been a great place for people who are trying to take advantage of all of this stuff that is available to them. absolutely.

it is something to watch for. >> thank you john. there is a lot of here. we will be right back. ♪ >> you are watching "bloomberg

west" where we focus on technology and the future of business. apple says that it will refund the cost to consumers. more than $32 million over complaints that apps were too easy for children to purchase without parents' permission. they have to make sure they have direct consent from consumers before charging them. hewlett-packard is hoping to make a comeback in the smart phone market. they are launching a pair of android-based phablets in india. they will be the first hp smartphone since two years ago.

linkedin is expanding its job postings. it is adding unpaid volunteer work. it is making sure that the opportunities was that are of the highest quality. it could send people to linkedin even when they are not looking for a regular job. i want to get back to our special series on artificial intelligence. we have been learning so much this week about how these companies are using ai. we are talking about facebook, which just formed an ai division. what will they do, will they make robots? >> it is not like google has been talking about. it is about working with the vast amounts of data that the service has been collecting and will be collecting in the future. 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 still has a sci-fi ring to it. the fact is that it is already behind our digital lives, from netflix movie recommendations to amazon shopping suggestions to gmail's spam filters. >> everything you do on facebook or google or on the others, essentially there is an ai system behind it. this man has been studying artificial intelligence for more than three decades. now he is taking on a new post. he will be based upon first head of artificial intelligence. the company is bent on the future. what they plan to do with all of the data they have been collected from us. >> facebook has worked on their infrastructure, but now that they are established, they want to move forward. >> there has been a talent grab among technology outfits stop >> it is an important role in the way that we interact with

computers. there is a bit of a breeze right now between the companies. >> recommendation engines are nice, but that is left to ai researchers. we want to use ai to improve a computer's ability to the end here. >> we put on a webcam, and it tells us what category of object it is seeing. >> loafer? >> it is a chelsea boot, but i will go with loafer. how will this work in the future? >> you can see a picture, and it makes it much easier to search. you can look at your pictures in a way or similar pictures are shown. >> we have sophisticated sensing abilities, an idea of what you want before you have even indicated that, and they intend to use it for another application -- making money.

>> interesting. basically we are using ai to make facebook more useful. could it also get creepy? you talk about facial recognition and people get scared. >> this is something i talked about. i said, are you ever trying to balance what you are capable of doing with what the consumer is expecting a comfortable with? he agreed very strongly that it is important that we balance our approach with the expectation of the user. in the past, companies pushed things out and it got creepy for people. now we are at a more mature point where they are trying to measure things and get on board. >> let's talk about how facebook fits into the broader landscape. we talked about google buying nest yesterday. google has spent millions of dollars buying companies over the last few years compared to

facebook, microsoft, yahoo. they spent $13 billion combined. do these companies have to worry about google? >> they might. there is a benefit here. this man that they hired is a rock star among artificial intelligence researchers. if he is working at facebook, all of these other people are going to be paying close attention. maybe they would like to work at facebook. there is competition for other areas in that field. google has somebody and they all know each other. this is one other way in which they compete. >> is this tied to mark zuckerberg's grand vision? he sat down with the president of stanford yesterday and hennessy asked him, 20 years out, what is the big thing?

take a listen to what he had to say. >> will be the new thing 10-20 years from now? >> one of the things that will happen is just like the ability to ask more questions that you can reasonably ask the search engine today, something that we are actively working on is -- we want facebook and this whole movement of social action to not to be about sharing moments in the day today, but about real utility. >> google has been working to make search more personalized. zuckerberg is talking about something bigger. >> this idea that it is not just about you searching as much as it is the internet services presenting them to you actively. it knows that you are going to work this morning. you see some of this at google. it says, you are going to work. the weather is this and there's traffic on the way. you should leave earlier. facebook, google, other

companies are trying to be more active in presenting the information you need before you know you needed it. >> the cofounder of twitter came out with a new question and answer engine. it uses your whole social network to answer a question that you asked. it is not just a computer or an algorithm answering the question, but all of your friends and all of the people that you know can chime in as well. >> that broader contextualization of data, that is what you need things like artificial intelligence for. you are multiplying the information. it is too much for ordinary programming and ordinary data management techniques to handle. you need to have something that is already starting to think on its own and find the right information automatically. >> i'm glad the computers will solve all of our problems. [laughter] we are weeks away from a meeting of the minds. tim cook will be talking about patents next.

♪ >> i'm emily chang and this is

"bloomberg west" here in new york. we are a month away from tim cook sitting down with a samsung executive to talk about this wide-ranging patent dispute that has been going on for a long time now. here with us to discuss, along with brian blair of voice partners, you do not think it will lead to much. >> the mediation? it has been going on for a while. the last time it did not lead anywhere. >> it is still in the court. this is a real effort to put all of the legal battles behind. they are spending a lot of money on this. the hope is, let's get this behind us and let's focus on our

own products. >> is it possible? there is a lot of bad blood. >> if they both come to the table with a solution in mind, it would be great to not hear about it. we could really focus on what is coming next for each company. they can fight it out in the public. >> if you talked about companies, they say exactly what you are saying. they would rather not do this. they wound up in this position. tim cook says that he hates litigation. >> there are a lot of law firms that are probably really happy to make money on this. >> there are a lot of people who would like to see this happen. it will end this year and we will stop hearing about it. >> it will get worked out. >> samsung has admitted that they copied the iphone early on. they will not do it anymore. >> let's talk a little bit about ces. you were both there.

there must be interesting stuff. samsung came out with a connected home. >> a different connected home, but a big trend this year. >> it leads me to wonder, what is apple doing right now? >> they are not doing anything. there's is no evidence that they really care about it. with the google acquisition of nest, they are out in front in terms of making the home connected. there are a lot of companies that are moving in. qualcomm showed the way that their devices and appliances are connecting the future. they're building a new gateway that will monitor your internet traffic in your home and favor bandwidth where it is needed. apple does not seem to care about this market. that is surprising to some people. >> there is one way that apple is connected to the smartphone market. >> the apps. >> they have services that tie back into a smartphone.

when you think of a smartphone, you may think of apples. whenever they have in their software. >> doesn't matter that apple is missing the boat? >> it is important because the perception is that apple is behind it in this regard. they are not outwardly trying to buy any pieces of the smart home puzzle. we could see a television from them in the next 24 months. that could be a way that they get into the smartphone business. they are not going after these connected up i just stopped let's you think the television will happen? >> i do. there is some evidence in the supply chain that we could see a smart watch or some kind of a wearable this calendar year. i do not think there is any evidence in the supply chain that we will a tv. >> with the tv industry, the panel-making, that is a lousy business to be in. >> it is not a great business to be in. but we are right at the beginning of seeing an upgrade

cycle. these televisions that are twice the resolution of tvs over the last 10 years. >> samsung came out with a huge one. >> everybody is showing one. a lot of them are bendable or at curved. this is an opportunity for apple to get in. they have played around with a lot of things that do not come to market and is to be one of those. until we have evidence, it is uncertain. >> let me mention something else i saw. it is this idea of the connected car. >> acting cars was one of the biggest trends. they were showing ford, gm's mercedes, everyone is putting apps on that little screen in your car. it is getting smart. it is taking a lot of the applications like facebook and pandora and those apps are being made available in the vehicle. >> you are seeing with google and android, they are trying to

find partners. >> it will be a big battleground this year. ios for cars. apple is working with 12 manufacturers that will integrate with ios. we will see that rollout throughout the year. google is trying their own effort there. >> give me a time frame. cars have a long lifecycle. when will this be in my car? >> if you buy a new car in the back half of the year, this year, you will have the option to get a connected car. it depends. if you buy a tesla right now, you got it. >> i am not buying a tesla. >> there are a few cars that act as modified hotspots right now. if you buy a new car this year, you can have this. >> when you look at google and apple and samsung, how do you see them stacking up in terms of how much of the territory they have in play?

>> apple will win the car were this year. they are not trying to own that screen. they just want to be compatible with that screen when you actually get in the car. manufacturers are more likely to work with them and be compatible than to let apple completely own that screen. >> are they trying to own the screen? >> google owns the screen in the audi. they would love to own the screen in all automobiles. >> automakers are inherently conservative. if this speaks to apple strength, with ios, it is a reliably updated operating system. android, it has some fragmentation and it is more of a wild west. we are not sure what we might be getting. the automakers say that they may like dealing with one company and knowing exactly what they are getting. >> let's talk about 3-d printing. this is another thing that you are excited about. will i be wearing 3-d printed

clothes? >> in 10 years, you may be doing some of those things. the 3-d system, it did very well in 2013. some of the smaller players are up even more. you got a glimpse of the whole infrastructure. it is not just about maker systems. it is not just about the balance sheet. there's a whole ecosystem of companies that are working on 3- d scanners. they are working on software to make it easier so that you can have the option of buying a 3-d printer in your home and making an iphone case or a watch or earrings or whatever it is you want. where is the tipping point? isn't this year, 2015? it is getting easier and cheaper to buy these machines and use them. >> how much do they cost? >> you can buy a very good one for $1000. >> can they make anything? like they can make anything

small. for $500, you can buy a mediocre one. makerbot has a few stores. they have one in new york and in greenwich, connecticut. you can go in and see what is possible. we will see more of those stores across the country. it is an important trend. >> brian blair of wedge partners, you will stick with us. we will be back with more of "bloomberg west" in just a moment. ♪ >> welcome back.

i'm emily chang in new york with sam grobart. i want to bring jon erlichman into this conversation in la. you have the u.s. fight for us. what do you have? >> it is 105.5%. it is the estimate in growth of windows-based tablets.

there are a lot of windows tablets out there. the number will get up to about 18 million. it is still small compared to android tablets and apple tablets. >> before we get to it, they are starting at a low place. >> when it comes down to is that the units are very small. 15 million units this year, i do not think that is very lofty. nobody that i knew was buying a windows tablet. the 100% growth headline -- >> is it the units sold or units shipped? >> that is crucial. >> i have yet to see someone in the wilds with a service tablet. >> i have seen it once or twice.

>> it is a unicorn. >> we are seeing some improvement in the numbers when it comes to windows-based tablets. will they become a real competitor at any point? how much longer will it be an ipad market? >> there is still a very large global market for competing products. if they can get down to that $299 price point, there may be an opportunity for them in places like china or india. >> there's a precedent for what you are describing. look at the performance of windows mobile in latin america. it has actually been doing pretty good number wise. let's look at blackberry. they have done very well in indonesia. go figure. that is the place where microsoft will gain shares with

their tablet. you have to look outside of the u.s.. this is an ipad country. but the point i would add is that inside businesses, that is where microsoft is going. the large majority of tablets are being sold there. this is something to watch for inside the i.t. department, the people who get leery of android- based tablets. that could be where microsoft users materialize. >> i do not think it will change. every company is willing to deploy apple and the ipad will stop security arguments are old news. i actually think -- i do not think windows is that much of an opportunity. >> i would argue that the ecosystem has changed a little bit. microsoft had to convince those i.t. managers, those cios at large corporations -- it is reversed.

employees are showing up. >> bring your own device. workers are bringing the device to the i.t. managers and saying, support this. >> people like ipad and iphone's more. what do they do? >> companies are having to coalesce around an operating system. you have three choices. android, ios, or windows. we have seen apple very strong in the enterprise. that will continue. that was a key trend we saw in the back end 2013, apple moving into the enterprise. >> brian blair, sam grobart, jon erlichman, thank you all for watching this edition of "bloomberg west." we will see you tomorrow. ♪

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