>> live from pier three in san francisco, welcome to "bloomberg west." i'm cory johnson. here's a check of your top headlines. switzerland ending its three-year policy of tying the swiss franc to the euro. the news said swiss stocks lower on fears it will hurt exports to europe. the u.s. stocks drop for the fifth straight day. banks fell. this year's flu vaccine is not working too well. the cdc says this season's flu vaccine is 23% effective against the predominant flu strain.

people over 50, the vaccine was 14% effective. the flu has mutated since the vaccine was created and manufactured. radioshack preparing to file for bankruptcy. it could come as early as next month. radioshack is also talking about sprint, the wireless carrier leasing some of radioshack's stores. chinese uber competitor raised $600 million in funding, with existing shareholders ali baba and tiger global management taking part. it is now valued at $2 billion. in china, upstart phone maker xiaomi is known for one thing, cheap phones. now the upstart is jumping into the higher end market, taking direct aim at samsung and apple.

xiaomi just announced their biggest and most expensive smartphones for $371. that makes it a tad bigger, a little thinner, and a lot less expensive than the iphone 6+. here is xiaomi's ceo in beijing. >> we are lighter, thinner narrower, and shorter than the iphone 6+, but we have a bigger screen, all without impacting function, performance, or design. >> but is this a risky move for the company whose success has largely been built on offering lower-priced phones. let's take a look at how xiaomi became the world's third-largest smartphone. in just five years. >> xiaomi ain't so little anymore.

it now trails samsung and apple in global smartphone revenues. last year alone, sales more than doubled. they sold nearly 61 million phones. xiaomi is flushed with cash following a private funding valuing the company at $45 billion. that is worth more than blackberry, garmin, and intuit combined. it was founded in april 2010. xiaomi officially launched its first android-based system. in 2011 xiaomi took on the iphone with its first smart phone. 71. just like apple xiaomi surrounds , its product announcements with great fanfare. but how did they rise so far, so fast? the distribution model is bare-bones. phones are sold only online and not a dime is spent on advertising. that helps xiaomi undercut competitors on price. the "me" costs much cheaper than

other phones. the companies facing criticism over the similarity to the iphone. the company is targeting a handful of global markets, but its success in china may not be easy to duplicate on the world stage. nonetheless, venture investors are betting that little rice has a big future. >> what does today's big announcement mean for china? hans tung joins me from beijing. he is a xiaomi investor. you were at the event. what did you think? >> i was very impressed. the phone looks nothing like the iphone 6+. it is very slick. the photo taking quality of the phone is amazing. it is the best phone that xiaomi has ever made.

>> when they announced it, xiaomi makes a habit of glomming onto other brands. i thought one of the slides they put up when they announced the camera, and it was a sony camera. i think there were other announcements giving credit to the component makers, the qualcomm, snapdragon ship, for -- chip for example. why does xiaomi do that and other phone makers don't? >> beijing wants to project its companies as being very prosperous to its consumers. people tend to associate lower quality with cheap price. they want to sell you that everything is top-of-the-line. >> the price point is interesting as well. still coming with a much lower price point. that matters a lot in china. will that matter outside of china where the phones are subsidized and most people in the bigger markets like the united states and parts of

europe, where there are no subsidies, people are not paying the whole price of the phone? >> you look at the emerging markets, what is china or taiwan, hong kong, southeast asia, india, brazil -- there are a lot of users out there who would love to have the xiaomi phone. xiaomi is demonstrating itself with popularity in china. and that popularity can emerge beyond china. xiaomi will be a great item. >> the next biggest emerging market is india, but company sales were halted because erickson sued, saying they violated some patents. what was the focus at today's event on the important issue of patents? >> based on past experience, samsung paid off erickson.

four $560 million. if xiaomi pays, it would not be an issue. it is in discussion right now. >> i guess so. you write a $500 million check you can make a lot of disputes go away. this recent round -- i'm sure an earlier investor is very happy. i wonder about profitability how important it is for this company and the razor thin margins. what do you think xiaomi's target operating profit margin is? what do they want to do? >> the focus -- historically have been charged in the gross market as they have stated. on top of that, all the software related services are to the bottom line. for 2014, beijing has stated the company will do more than $10 billion in sales, and a net profit is roughly around $1 billion. for the first half of 2014

roughly around $500 million. reportedly. they will hoping they will see $10 billion in sales. it is very healthy for what people think is a hardware only company. as a company gains more scale there will be more profits. >> with a 10% operating margin as you're describing, you think that margin is going to get higher over time as more services are ladled on, or do you think they will stay at that 10% operating margin? >> i think there is room to cut prices even further. another thing that came out yesterday is that -- he also

shows companies that xiaomi invested. samsung takes a more conglomerate approach. to their accessories. xiaomi is taking an ecosystem approach to make investments with other entrepreneurs to make great accessory products. >> hans tung, thank you very much for joining us from beijing. facebook is launching a new product for the workplace. put down your facebook. stop posting. you are at work. you are supposed to be working. facebook knows at and they are going to try to make employees more productive. really? we will talk to brett taylor next. ♪

>> i'm cory johnson. this is "bloomberg west." i do not visit facebook while i'm at work. i'm sure you have never searched facebook at work. facebook is trying to go legit. now facebook is in unveiling a social network entirely for office communications called naturally facebook at work. but will it work? or will it go the way of other failed facebook launches? facebook phone or facebook yes.

brett taylor has done a lot of work on this notion of what people do at work and how they share things and information. i have been using quip for the last couple of months and it is a fascinating solution towards this issue of what works at work and how can you be social at work. does facebook get what people do at work? >> i think they do. for me facebook at work isn't , necessarily going to take on traditional products like microsoft office. for me it represents this trend where consumer product experiences are creeping their way into the enterprise. a lot of people joke about using facebook at work. almost everyone uses text messaging at work. at this point. >> what are people doing? there is stuff to get done. >> if you want to talk to someone urgently or they are on your vip list, most people -- because e-mail is so high volume at this point -- they're using short form messaging, maybe facebook messenger, linkedin to communicate with colleagues. we have seen it with products like yammer making their way

into the enterprise from the outside. from that perspective, it is not that surprising that companies like facebook are trying to more overtly bring experiences into their enterprise. >> i guess i wonder what facebook has advantage is here if it is knowing what people do, try to take these chatting experiences and find ways to make them work at work -- i wonder if there are things facebook knows about their users and the way people interact, and if there is some advantage to having the social grasp that can let them exploit that in the workplace. >> there are some advantages. i have been humbled by moving into enterprise by how little i knew about it. i worked at google and facebook prior to this. enterprise software is different, dealing with i.t. departments, security requirements. that is the biggest challenge facebook has. whatever advantage they have they don't necessarily have credibility for the audience

with facebook at work yet. a lot of work places block facebook and things like that. on the other hand i do think the , experience is familiar. to the degree that you think this type of experience is valuable in the workplace, having it look and feel like the experience that almost everyone has used at this point is an advantage. the sales and marketing and relationships with i.t. departments is what i would look at as the biggest hurdles to overcome for a company like facebook. >> facebook flops, there have been many. good on them for trying something. but the list of facebook flops is not a short one. you have facebook credits, facebook phone, facebook gifts facebook e-mails, and more. is it a culture of experimentation? or our heads rolling?

or both? >> i think it is just a culture of experimentation. i worked at google when -- >> you probably did all those things. >> no, you certainly don't put them that high in your resume, but i was at google and wall street criticized google for doing too many things. that has come around to the huge wins that have come around to that and forgotten all the misses. facebook has had good streaks and bad streaks. at the end of the day, a company like facebook with such a huge product generating such revenue it's intelligent to invest in a lot of research and development. >> do you look at what you are trying to do with quip is coming -- and you find out your old employer is coming into the same area? or, this is a competitor i don't want to have? or, do you know why quip is going to kill these guys? >> i view them as complementary. facebook uses quip. most of the company uses quip. we are almost ubiquitous there.

they have been a great customer for us. i think that the kind of serendipitous sharing that facebook at work represents is different than creating and collaborating on documents. one is a creative tool. another is more about broadcasting to the people you work with. for a lot of vendors like us facebook at work is completely complementary. if it takes off, we will integrate. it's sort of completely separate from what we're working on. on the other hand, i do think when any big company moves into a new market, you pause and think what is going to be next for them. facebook is such a happy quip customer, we have not worried about it much. >> my first day working for bloomberg, i flew to new york and sat next to betty liu and jeff weiner. the ceo of linkedin. he said there will always be a linkedin separate from a facebook because there'll always

be a picture of you doing a keg stand that you don't want to share with work. can facebook really be something at work? because some of the stuff on it is so personal. >> it is a completely separate instance of facebook. i think that is the premise of facebook at work. your work persona is separate from your personal persona. that is smart. essentially, you don't want -- >> i have a great idea. facebook for mom. >> thank you very much. "bloomberg west" will be back. ♪

>> intel's forecast for the current quarter is sparking concern that the one-time benefit of increasing pc sales in 2014 won't happen again. i sat down with intel's chief financial officer to find out the company's strategy for handling the pc slump. >> the fourth quarter was a strong finish to a great year. our growth was broad-based over the course of 2014. the pc market grew. our revenue in that segment was about 3%-4%. then we saw a robust growth in the data center. >> looking forward, do have any suggestions what we might be seeing, and if this was -- it usually look like the third quarter was a big boost from windows xp, but then he continued into the fourth quarter.

the guidance isn't clear where that is going to come from. what do you expect going into 2015? >> from the pc market we are expecting units to be generally flat year-over-year. we are not expecting robust growth. if the pc business for us is flat, we can experience nice growth as a company. we are looking at flat pc, overall revenue growth for the company in the mid-single digits. within the pc market, we characterize 2015 as being less -- seeing a little less growth coming from the enterprise and less weakness coming from the consumer segment of the market. >> that's interesting. that seems like it will be tough. why would a consumer even by a pc at this point with tablets being more functional? people jump out of that in check their cell phone first thing anyway. >> we have worked tirelessly with our partners to bring exciting, innovative devices to the pc market.

price points have come down to a point that for $250, $300 you can get a touch-enabled pc. what we are seeing right now is people are replacing pc's that are three and four years old. the investment they want to make is to replace that as opposed to replacing a tablet that is one or two years old. that was a shift we saw over the course of 2014. >> the data center business for the quarter was up 11% for the year, 18%. our --are the drivers that led that business in 2014 going to continue in 2015? >> we believe so. there is a couple of real fundamental secular drivers that are driving this business for us. first and foremost, we are seeing a buildout of the cloud infrastructure. we are seeing robust growth in that segment.

those customers are in excess of 20%. we are seeing big investments in companies building at the ability to do data analytics as a result of all of this data being collected. the combination of that has been the driver of this business. it was up 18% in 2014. we expect growth rates in 2015 in excess of 15%. still very robust growth weight -- rates. >> that was stacy smith, intel's chief financial officer. blackberry shares fell just as quickly as they spiked. where does that leave blackberry now? that conversation is next. ♪

>> he has been called tech's boy genius. perhaps the only ceo who has refused to keep a schedule. david karp started tumblr before he was 20. he sold it to yahoo! before he was 30. it is now one of the most creative and social blogging platforms, all from a guy who dropped out of high school. he drives a vespa. joining me now, tumblr founder and ceo david karp. thank you for joining us. thank you for having this on the schedule. >> i do have a schedule now.

>> now you are part of yahoo!, you have meetings. >> we had meetings before yahoo!. but yeah, this has turned into a major team of 300 people. a major business we launched 1.5 years ago. >> tell me about you, where you grew up. tell me about your parents. >> i was born and raised in new york city. my mom was a teacher. although she started in the music industry. my dad was a composer. i found myself surrounded by all of this creative technology growing up. in my dad's recording studio. and my mom's work in the recording industry, i remember spending those nights and weekends in the recording studio. it felt like the starship enterprise. >> when did you learn how to code?

>> i learned markup languages and i was 11 years old. one of the first things that drew me into it were these personal identities people were creating for themselves. i saw the aol profiles and away messages. i saw that in the websites people were building. i really loved that expression that identity. the idea this could be a place to create something that represented you. >> you dropped out of high school when you were how old? >> after my freshman year, when i was 15. >> you were homeschooled. >> computer science education in high school, at least in new york city, really did not exist. it was not in high schools. now it is there in a huge way. kids are learning to code in grade school. i always insist that -- if you

have that stuff at your disposal, hang out and spend time with teachers who are proficient and can help you get started. that is something i did not have. >> i spoke to many founders who dropped out and made a lot of money. they found it amazing companies. -- founded amazing companies. they don't recommend anybody do what they did. >> if i had access to a computer science education when i was in high school, i would have stuck around. if you can find it there, stick around. >> you went to tokyo when you are 17. why? >> i had my heart broken and needed to get out of here. so i moved to the other side of the planet. i was excited because i thought it was a future city, a place with remarkable technology and engineers. i love japan. i absolutely love tokyo. i ultimately came back to new york with a sense of american entrepreneurialism. >> you started tumblr in 2006.

tell me how it began. >> i was really noodling on it for a while. coming out of desires i had for something that did not exist at the time. >> what were you trying to create? >> in around 2005, the creative capabilities of the web had vaulted forward. video on youtube was possible. video is one of the hardest things to do and youtube unlocked it. >> it was the beginning of facebook. the heyday of myspace, friend stern --friendster. >> my frustration, much of the technology was marching forward but the services people were building were more and more

restrictive. facebook was giving you publishing capability but the same vanilla white page everybody else had. put your photos on flickr. put your articles on word press or movable type. your videos on youtube. you ended up with different channels. your expression broken up across all these disparate networks. >> how did you decide to turn it into a business? >> it decided for itself. we had a couple of weeks between contracts, my consulting company. we were waiting for the next gig. i said, let's just go for it. i feel like we can hack together the basic features. the basic features were the ability to post anything. tumblr was one of the first platforms that let you post a single photo, a set of photos, a link. the video you that you recorded and edited, it could all go to one place, one blog that was yours. the ability to customize everything, which was also novel.

>> elon musk has said starting a company is like falling into the abyss of death. i have heard other entrepreneurs say it is like swallowing shattered glass. here you are, 20 years old. did you have those moments? >> of course. it was horrifying. there have been some, plenty of stomach turning moments. plenty of nights without sleep. moments where you feel like you screwed everything up. it is all over. you get used to those moments. you get through them, at least in my role. knowing the team needs you to be an optimist, to be positive. to see through to the end of it. you need to be the one to paint the path forward, how the team -- and show the team how we are

going to keep going. the big moment for us, a public one, a few years in. we started to get some popularity and traction. all of the sudden, the site started going down. we could not keep up with the scale or growth. the embarrassing thing for me and the team was, we thought we were really clever. we thought we had figured this out and we would scale this to infinity. little did we know what we did not know. we found ourselves underwater . all of a sudden the site is going down. we are developing a reputation for the site going down. the most stomach turning part was, we had these brilliant creators. people using tumblr to do remarkable things. using it as their home, for their incredible work. we are taking their stuff off the internet and out of the

world. we thought that was so unforgivable. terrible. it was crushing for me and the team to be screwing up in that way. it was exacerbated by the fact that we had not built out the big robust engineering team we needed the time to get through to the other side. >> you started as a teenager. you go through these highs and lows. how did you develop your own personality and style as a leader? how hard was that? >> i have been lucky to have great investors and mentors from early on. i have great partners with me to steer me to what i should have been doing with my time. for every moment in our history. the way the team has this works has changed. the people have changed.

>> tell me about selling to yahoo! did you want to sell or did you feel like you had to? ♪

>> tell me about selling to yahoo! how did you start talking to marissa? >> the conversation was a really fun one. this came at a time when we were looking for partners for strategic investment. we were in the process of raising money. more than just have an investor cut us a check. resources, distribution, content that could make our network better. there were a ton of things to do with yahoo! her vision for what she was trying to do with the company. it was aligned with what we were doing with tumblr. where we were going next and what we would need.

the other thing was, marissa, we found an unstoppable positivity and the optimism which we had come to appreciate. it is not universal across this industry. there are plenty of people with brash personalities and occasionally an intense negativity. i have always been pretty allergic to that. >> were you trying to sell? >> we were not trying to sell. we needed to raise some money. the conversation with marissa was one of the most exciting conversations we had been having at the time. it escalated from cutting us a check and finding ways to partner together to let's make this official. we want to do all of it. that was something big to chew on.

those where an emotional cup of -- couple of weeks. it was an incredible offer and opportunity. a year into this thing something i can say she has lived up to. >> tumblr is technically separate. what is the relationship now? >> we are a wholly owned subsidiary. we have our own leadership team. sales, finance, all of that. >> what is it like having a boss? >> not all that different than having a board. you always answer to somebody. as soon as it is official, the board says goodbye. they send you nice notes and congratulate you. but they basically say goodbye. it's not your board anymore. >> it is worse than going off to college. >> it is terrifying. these guys who had been partners, mentors of mine on the team, hugely involved. some of them for like seven years.

you are now all of a sudden parting ways. it was a jarring moment. we are lucky that we have amazing support and an amazing mentor in marissa. but that was a big shift. >> what does marissa want from you and tumblr? >> what got her so excited, what got us so excited, she saw the pathway were on. -- half that we work on. --path that we were on. >> what have you been able to do with yahoo!? >> the big one came about six months in. we launched tumblr ad products sponsored by yahoo! ad tech. we could go to the market with robust ad technology. with this expressive canvas we had been working on for the last seven years. that was a monster combination for this ad industry. that suddenly gets to benefit from the work we had been doing.

>> fred wilson, one of your investors, recently talked about companies at some point need to turn into a real business. they need to focus on monetization and profits. he said, tumblr had to be sold even though they had potential. the annual burn rate was almost 50% of the entire fund. how do you respond to that? >> we were making money. it is true we had a big burn rate. we would have been able to -- the options in front of us were raise what you call like a growth round. get somebody to cut you a big check. or find and acquire, take on the burn rate. until you cross over to profitability. >> what about user growth? give me number is in terms of where tumblr is today. how many blogs, how many countries? >> at the time of the acquisition, we were 100 million blogs. we crossed over 200 million blogs.

we reached 450 million people all over the world. >> calms course as you have 400 -- more than 400 million. today it looks like it has dipped. >> we use them for our advertisers. it is pretty far off our actual audience numbers, which are closer to a global audience of 450 million people. they do not directly measure mobile traffic. it is very hard to get the full picture. >> marissa mayer's acquisition strategy has been criticized and tumblr is her biggest acquisition so far. critics said, tumblr was not making money or growing. how do you respond? >> we were and are growing very fast. if she wanted to buy a profitable company, there are

and were plenty to choose from. she saw a path forward and something she thought could be not just a big business by the -- but a business with a lot of alignments with yahoo! we are about to have a lot to brag about. >> what is tumblr's ad strategy? what is the strategy for growing the business now that you are within yahoo!? >> we have a novel ad platform. it is about wide open creative expression. trying to get the most creative parts of the industry, to give them a space, a digital space where they can tell those same stories. where they can inspire us to become customers of these brands. get us to aspire to drive the beamer. our drink the coke. -- or drink the coke. yahoo! is building more and more content on top of tumblr. digital magazines, yahoo! food.

yahoo! tech, and travel. those are built on tumblr. we launched the ability to take that advertising we're developing for the tumblr network, where you come to get the reach demographics and engagement of time on the -- of the tumbler network you take that same content and roll it out the yahoo! network. >> i want to ask you about the cover edition. what do you think of what they are doing? >> they have done a lot of things that nobody else is doing. they are kind of on the other side of a fight we have been fighting. giving people more identity. create something that is theirs. one of the things that drives me bonkers about medium is they try to make it a commoditized network. they strip identity away. with lots of long articles from various people rather than a place where i can set up and have my blog. myspace, my place on the

internet. but they are doing cool stuff with longform text. fine--vine is doing cool stuff with video. >> what about facebook? are you in competition? >> we are all kind of vying for attention, but it is different. we found our spot in the big internet. this big ecosystem right now. the stuff you go to see on facebook and twitter is created by people you know or celebrities you wish you knew. it is about people. tumblr on the other hand is a little bit more like your tv. it's not about people you know, the stuff you love. >> buzz feed? >> it is cool. jonah is brilliant. they are making great stuff, using tumblr to make great stuff. i was they would run it on top of tumblr. >> there has never been a $10 billion tech company coming out of new york. why not? ♪

>> how is your life different now that you have sold your company for $1 billion?

you are not even 30 years old. what do you like to do when you want to act your age. >> it is like, printing or drones or 3-d design. 3-d printing is one of the most creative technologies. that is what gets me really energized. >> what have you printed in 3-d? >> i am working on a chess set. a host of things from mechanical design that a comp--chump like me can start to figure out because the software is so good, so accessible. you can watch a five minute youtube tutorial. >> you are doing a bit of tech investing in new york. >> mostly just in my friends' companies. a tiny bit. >> there has never been a $10

billion tech company coming out of new york. why not. when there are several in silicon valley. >> i think it is a just a numbers game. there are more coming out of the west coast right now. we have some great ones but not nearly in the same numbers in the west coast. that's something we are working on. no shortage of ambition in new york. >> what about talent and money? can you get the best talent? can you get the most funding? >> i think so. we get a lot of talent from the west coast. i think new york happens to be a much better city then san francisco. [laughter] for all the things that are challenges, they only make us more hungry. we have a lot to prove that i think we will prove it. >> how optimistic are you about yahoo!'s future? >> i'm excited to be a big part of it. i believe in marissa. i think she has built an extraordinary team. i'm excited about a lot of stuff

they are doing on their own. and a lot of the stuff we're doing with them. i am hopeful and excited to be a shareholder. >> you do not think you will ever start another company? >> tumblr was a bit i really -- was something i really wanted that did not exist yet. it was never about doing the tech startup. >> net neutrality is important to you and tumblr. you have a position on it. what is it? >> it is important. we should do it right. and not set up laws or rules that set up the next generation of companies, people with ideas. two -- to half -- to have to worry about or spend time in courts or meetings with a handful of carriers that run the world. >> david karp, founder and ceo of tumblr.

thank you for joining us. >> thank you. this was fun. ♪

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