>> from. three in san francisco, welcome to bloomberg west where we cover innovation technology and the future of business. here to check with you with the headlines. hitting a record new high, point four of 1%. .9%.ow ending at energy shares were largely lower as the selloff in crude oil resumed. calling for a is temporary halt to the protests against police. policemen werey

ambushed and killed over the weekend. >> please get this message out. if you hear someone make a threat against a police officer, if you see something on social media that is a threat, call 911 immediately. --might -- would much letter rather get too much information. >> some officers turned their backs on him. they say the he is not giving support to police. is pushing back its this vision,ake a pushed back by three weeks. the fcc needs more time after time warner cable said it would submit 31,000 documents for fcc review. starbucks scaling back its partnership. it will not use the

order when square wallet is retired. it has been testing its own order ahead application. they will still process payments for starbucks. and now to the lead. the u.s. is turning to north korea's allies. its ownarted investigation following a request that claims north korea it used facilities in china to attack sony. northis no proof that korea is behind the attack on sony, they said. president obama said the u.s. or respond proportionately. any response to get north korea to do anything could get more complicated wants china is involved. joining us from new york is gordon chang.

you have written a lot about this difficult relationship. not just between the u.s. and china but between the u.s. and china in north korea. what do we think likely happened there? >> these attacks originated in china. u.s. intelligence sources have been telling various media organizations that the attacks did not originate in north korea and they started in china. that would be consistent with what we know about this china-north korea relationship. we do not have enough evidence to say 100% but what we do know is that these attacks were routed through chinese ip addresses and that means china had to know what was going on because china has the great sophisticatedmost and concentrated internet controls. they know everything that goes out and comes back. the north koreans took at least 100 terabytes of documents. the chinese knew what was going

on inside their borders. are located on a permanent basis. >> it is fairly amazing that the infrastructure that has been put together. thecker worked in china are north korean border and said the facilities that north korea has cobbled together are all over the uae and in germany. >> they are located in about four or five different countries but most are located in the people's republic of china, city with a luxury hotel. cyber hackers on a permanent basis, the chinese authorities had to know what was going on. the chinese are involved in cyber hacking of their own and we know that these north korean

attacks on sony are much more sophisticated than what north korea did last year when it attacked south korean businesses. most people think that technology came from the chinese, russians, or the iranians. it is probably the chinese. >> we think that north korea is acquiring hacking technology from china? >> we also know and this has been documented many times that best cyberorean warriors are in russia. the north korea has been able to launch state-of-the-art attacks not because they developed them on their own but because they were working with outside sources. this means that we have all sorts of issues we have to do with because president obama on friday at the press conference said that no other country was involved. that is consistent with the fbi

report on friday which did not indicate the involvement of any including china. >> it is interesting when i unit 8200, israel's in northt unit 121 korea. i find it interesting that this country that cannot get power for to its people can be on the cutting edge of cyber attacks. how come located is this relationship with the u.s. and china as it relates to china? >> we have issues with aging of our own as we know from those indictments of five chinese military officers in may. the chinese have been going and thes. corporate's amount of theft is staggering. when you look at the blair huntsman report last year, they said american companies lose technology each year on the

order of u.s. exports to asia. u.s. exports were $475 billion. 470 -- $475s not billion, we're talking on about a lot of information and technology and know-how that has been taken by companies -- countries like china and iran. chose that venue to call it cyber-vandalism and i withred if that had to do the u.s. going to china, it had something to do with that nuanced phrase that the president news -- used. >> the president is trying to keep the china connection undercover because he wants to go to beijing and nudge it in the right direction to make sure that the turf out these koreans

that are inhabiting chinese cities. this is the diplomatic answer. whether or not we call it cyber vandalism or an act of war, what do we do about it? ours important that response be effective whether it is proportional are not. we have not had an effective response either in north korea or china. >> is it notable that china has done a lot of surveillance of u.s. companies through its cyber capabilities and this was an attack on a country, not -- company, not the country? >> while he is talking to the chinese about the north korean attacks on an american based business he has got to talk to the chinese about their attacks on our businesses and that puts the chinese in a difficult position. they cannot say this is really bad because they know that their involvement and we can prove it

because we have attributed those attacks to one building in shanghai. we attributed those attacks to a particular for that building so the chinese cannot say it was not us in this private discussions. >> undeniable. thanks a lot. phone vendormart has raised another $1 billion in investment. aty are the richest startup $45 billion but how can a cell phone maker be worth that much money? that story is next on "b loomberg west." ♪

>> i'm cory johnson. this is "bloomberg west." the cutting edge of dumping old technology. they have done away with all its office voicemail. starting with its atlanta headquarters and their tech center. alternativeng methods to contact employees. the e-mails save $100,000 a year but the spokesman said it is more about simplifying work in making the company move faster. employees could have kept the old technology but only 6% opted to retain their voicemail line. quickartups have grown as -- quickly as the chinese smartphone maker xiao ming. phone maker.mart made anothered --

$45 billion. john butler joins me now from new york. you have followed this company for a long time. this valuation of $45 billion for a company that is totally not profitable is fairly amazing. >> it is pretty amazing but so is their growth. they are on track to ship 60 million smartphones this year. when you look back at 2011, they were just a startup. we are talking a quarter of a million units. the growth has been meteoric. one of the keys to their success in my view is the fact that they into the young culture in china. they have resonated well with them. it has earned them the neck name the apple of china and it is well deserved have an online only model. they are begin to software. they are getting into apps and

gaming and video in the have done a superb job. hats off to them. is interesting to me and when you look at market share, there is their strength but it suggests how variable this market can be. they have grown to this great big market share globally. overall, that15% is a great strong thing. that also suggests they could lose it as fast as they got it. >> may be. thehis point, they have brand strength to hang in there to continue to grow their share. one thing i will say as they hit the sweet spot in china. they really came to market with these fully featured, high-quality phones for the price and they kept the price point low.

andeen call it $100 u.s. $300. a home-grown, they really recognized where this sweet spot was developing and they answered broad portfolio. great phones and it resonated well with the people there. >> prices still an issue. we do not know xiaomi's financials. when you look at companies like lenovo that are doing 2% or not margins, theying are not making a lot of money. when i did a search of other companies that are publicly traded, revenues over 50%, they have a valuation of 40 alien dollars. there are only four companies like that. five companies like that, one is a biotech that is activist and the others have margins over

35%. nowhere near that operating officer billet he. >> the financials and not made inlic that one thing to keep mind is they are taking a strategy where they are not focusing just on hardware. they are developing this software ecosystem, built upon that growing base of phones out there. they have a terrific app store, a baseok android as operating system, a skin as they call it in the industry. they built on it and put their stamp on it. as they get more into gaming and apps and video and they made investments in streaming content, that all is going to help the margin tremendously because there is much higher margins and software then there will ever be in hardware.

>> you look at the low interest rate environment and you can see how investors chase any kind of topline growth. that a cell phone maker that -- whose primary operating system they do not own will never get the kind of profits that would value is it company because the profits me never be there. -- may never be there. >> have not seen the financials so i hate to comment on that and particular or on the valuation. but the growth is there and the strategies there. about where they are headed, where they are focused. it is not the u.s., it is not in canada, is not in western europe where the growth has slowed. beachhead scientific,

southeast asia, latin america, they have the right found that the right time in markets that are craving those low-cost feature-rich devices and again, they are layering on that content and software on top of it. onhink it is model is spot an island society that is likely to work well in coming years. watching.ine -- we will be watching. thank you very much. theit helped him using microsoft surface have. but so is the competition. talk to russell wilson. - on how issurface - the surface. ♪

>> i am cory johnson and this is "bloomberg west." as the nfl marches toward exciting playoffs, technology will play a bigger role in the game. it is faster and quicker to adjust than ever before. it was a great thrill to russell wilson. this was the first time grip -- glimpse of the secret photos -- makeped made mid-game adjustments. every time russell wilson does this -- the nfl is watching and

so is microsoft. this season, the nfl entered the digital age with custom microsoft surface tablets on the sidelines area diu appear is where cameras captured the images, carriages are controlled by the nfl. footage and ithe tablets on the surface on the sidelines. >> this has been revolutionary. >> coaches and players are cheering a digital transformation. >> we used paper with the old system with flipping through the pieces of paper. you only had two pictures. with this you have a lot more views. >> is a bureaucratic process. the guy sits here on the

sidelines in this booth and he has a computer where he manipulates the images and then prints them on a laser printer and hands them off to the coaches but now it is done digitally and sent to the surface where the layers and coaches can work their magic on the sidelines. and theyrs, the field have that image that was taken before and after. they can look at this thing and downloaded onto here and make the adjustment compared to other plays that happen and make whatever notations they want to this is for nfl use. this is only a taste of what the technology could do. the league limits the use of video at different camera angles. microsoft is planning for more next season. >> the players and coaches one more. they want video, they want video to put their played books in it.

need to know what to do and so that helps a lot. >> russell wilson of the seahawks blew out arizona yesterday. the clock is ticking for holiday shopping. how can you make sure your package arrives on time and how is it changing the nation -- nature of the shipping business? package delivery for off-line delivers. next on "bloomberg west." for bloomberg television on the markets. let's get you caught up. another record for the books. stocks rallied at the down. adding all-time highs.

health care and energy declined. the dow added 154 points. ♪ ♪

make the best entertainment part of your holidays. catch all the hottest handpicked titles on the winter watchlist, only with xfinity from comcast. >> you were watching "bloomberg west." i am cory johnson. holiday shopping is coming up to the line. online shipping service. they are wrapping up a brick andp with mortar stores. is the easiest way to ship anything. transport.ew

say you app that, wanted to ship a sweater to your niece. you take a picture of it and enter the recipient's address and they will pick it up and package it up and shipped to the lowest cost carrier. ups, usps. to have those agreements or can you send in a shopper? >> we are -- we do not have to be inside a store. we call ourselves the first mile and so it is designed for consumers, yourself, three big use cases we have, gifting from your home or your office. so huge.e returns one third are actually returned.

the other is casual selling. issue, do you think those are returned because the item is not what people thought it was or because of size? .> the biggest ever is apparel furniture, too. zappo haveike changed returns. do abouto you returns? could give us a prepaid label and it would be a free return and we use it as a customer acquisition but we want to be able to change it and get make it sothat and you take a picture and it is gone. >> what are your for film and costs and what do you expect of

her time? >> this is really a volume game. when it -- we started it was expensive. we have people that are around in the cities but warehouses and we have people packaging. up and running is a big upfront cost but over time volume drives the cost down. >> the notion of sending a shopper, you want that shopper to pick up six things because that lowers your cost of that one delivery. >> for single item it is hard to make the economics work. seeing people who are doing five or 10 items. we have people who are doing 50, hundreds of items and that is were we make a lot of money. the things is knowing the customer but seeing where

they live, whatever their businesses they do, you're stepping in the middle of that relationship. that some areine not thrilled. >> we enable people to ship because they were not before. they would not have gifted otherwise. areretailers, they competing with other online merchants. >> does that create a disadvantage for the retailer? are removing the barriers. packaging is such a huge thing. no need to wait in line. lines in pictures of the post office. that is crazy. >> you want to start to concentrate, how do you pick the reason -- region into it you are going to expand? >> it is about getting that density. we are taking the population.

san francisco, new york, we are moving to miami. i want to expand to cities that have a lot of people in them. we started the idea here. early adopters are great. >> and people that are download to -- a new app are the ones that are here. is it similar in new york or how do you identify what new york is about? >> new york is good. they have a lot more people. address over 5 million people. >> how do you know they are such great tech adopters? >> there is lots of studies. >> miami is not the case? >> it is the e-commerce companies, smaller shops. it would be like a boutique. they will have an online presence and they are -- have a

packaging center and they are shipping items out. we have removed that and enabled them to focus on their business. >> may be the ideal story is not banana republic or williams-sonoma but it is a one off boutique or a great men's near here.ore they have an online presence but going in there and saying the random and wonderful things they have is the shopping experience that works best. >> this is an opportunity to get in front of their customers and it is around gifting. we have a presence and the 19 stores in the three cities we are in. every single purchase you get free shipping and we are -- we have a physical presence and there are three flagship stores and that is a key off. instead of having to go home and request a pic you can do it in store. this is something that is not

like our core business. the business is doing it from your home or office. banana republic was a good opportunity to get in front of their customers. >> it is like a dumbbell approach where you have a chance to reach customers. maybe your business is elsewhere. interesting stuff. we will keep watching shyp. remodeling platforms. the ceo is with us next on "bloomberg west." ♪

an onlineis platform. 25 million users. they have had successful launches. to take on theng rest of europe and asia. i was at a friends house a couple weeks ago and he is redoing his kitchen. this is a guy who has built many homes and all over the kitchen with these images printed up. in guys are having an impact this market of remodeling. >> this is a great opportunity for us to help friends like your friend all over the world to make the process much more fun and productive when they

remodeling designer homes. >> i have done both. remodeled and built the house. you know there are ideas and the ability to put them into play and understand what you're looking at has never been good. what is the problem you're trying to solve? is trying to -- they process. different. you have a very visual. downan get ideas and go the line for inspiration to execution. we have great service providers and find great materials and get it all from one place, one trusted source. that is the magic there. >> i will take my kitchen because it is up probably the most common remodeled. is some of the most.

>> people do different things in areas.nt germany is very into outdoors. pools.- they are into australia is different. every country is different. >> that is interesting. we went out and bought a bunch of magazines. we were looking for a certain architectural style. we sat down with the architect at the kitchen table and went to page by page and showed him the things we liked. we would give him the stuff and he would do some drawings. a lot of paper and books and not very fast. >> this is how we started. we spent lots of money on these books and each one of them, there was one picture that liked.my husband or i that is not helpful when you need to make 5000 decisions. by bringing it under one roof,

it was helpful to people. now they could see lots of ideas but also get the data that comes with it. we provide a lot of data about where, how, who did it, what are the dimensions, we can get these. >> give me an example. >> you look at a beautiful picture of a kitchen and say i want to see how the kitchen looks from the other side. i want to see the rest of the house. you can. whonow who built it and designed it. you can ask questions. you can get the products and materials. it is all within one click of a button. it is pretty amazing. >> this is the kind of thing pinterest would promise to do across different verticals. >> what we do is different from any other destination out there. we are very different.

we provide everything from lots of educational pieces and guides coming from the professionals of the industry and inspiration is very big but it comes with all the metadata that is attached and people move down to build and execute and in this industry is important to have reviews and trusted resources and great service providers. we have 600,000 that are actively collaborating with 25 million people to help them build their homes on houzz. ability to get all the products and materials from all of the world within the click of a button, it is really a different experience for people that are trying to build. >> let me ask you in terms of design. one of the things that is wonderful about architecture and design is it is different in different areas. do you find there are certain designs that 30% or 40% go to?

>> it is important for us to build the destination that different people will be able to find what they want. something that your going to not necessarily my cup of tea and vice versa. we made sure from early days that we have different styles and different budgets and product. for every service provider you have a group of people that like it and people that prefer something else. >> thank you very much. >> thank you for having me. >> a lot of kids playing with legos but not holding new innovative as mrs. around those legos. joins us with the design that started on legos next on "bloomberg west." ♪

a 13-year-old was shocked when he found out about the cost of rail printers. from $2000the cost

to 5000 -- two $500. $500. joining me right now. kid from silicon valley would think i will turn my legos into a business. >> thanks for having me here. that is the first rail -- br i made inter december. i was in seventh grade. >> you made this out of legos and some stuff from home depot. when did this happen? >> in december i came back from school and sat down and did my homework. go check theo mail. i was looking through the papers and i saw a flyer that asking

for donations for the blind. that is what i had a random question. i asked how did line people read -- blind people read? they said, do not disturb me, go google it. i found it about braille and how much a printer costs. it can get to $80,000. i thought that was quite high especially in developing countries and how there are 50 million blind bill -- people in the world today and some of them live in developing countries. i thought that was quite high. then my science fair project was approaching fast so i thought i could do something about this cost in that is when i tried to e printer.her a braill >> the legal aspect, legos have

some sort of robotic stuff they do.rea >> -- they >> they have some kits on robotics that are useful for young inventors. >> you codified this into not just a printer that looks more like a printer and probably cheaper and easier but a business that intel has backed. wentwas done with 1.0 and on to a real consumer product after i got static feedback from people on youtube and google hangouts and stuff like that. after a that feedback, i decided to make a real consumer product and that is when intel wanted to incorporate their new chip dison. intel's e that is when i started working with them and how this project came together. >> what is the next step in learning to make something

amazing, building a business is another challenge. what are you learning? >> there are a lot of interesting people and i am just 13. there are a lot more mature alople than me, sever companies and several startups. what we're working on is the designsign house, the for the real product because this is a prototype. things.f the amazing thank you very much. we are following a developing story. north korea's internet access is off-line, going completely black after experiencing problems over the weekend. after president obama said they would respond proportionately. written about this a lot. there is one trunk of the internet going to north korea and those dark right now? fourrth korea only has

official networks connecting the country to the internet and you can compare that with over 152,000 for the u.s.. when all this tension started with north korea it is likely that the u.s. or maybe some patriotic actors took a look at networks and said we would like to take those out and today, they did. >> i wonder if this is the kind of a portion of response the president might be talking about or this is a more permanent thing. if they are going to abuse the internet they will take that power away from them completely. >> it is basically saying you're not taking well with others and we are kicking off the internet. that is a real this advantage for north korea, basically having so few outbound connections to the internet. we talked to one security expert who pointed out north korea's

notrnet infrastructure is interwoven into their daily lives. north korea launches many of its attacks from outside the country. they have to because they have so little bandwidth. and germany the uae and china and all over the world. we talked toperson said this may be nothing more than symbolic but as a proportional response it is pretty much in line with this does not harm citizens. citizens do not have access to the internet. it is a black eye for the north korean government and it is low impact in terms of impact on the common individual. you could see the u.s. launching this or some patriotic hackers as well. >> interesting stuff. interesting response to what they call warfare or vandalism. thank you very much. you can get the latest headlines

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