>> welcome to "bloomberg west." here's a check of your bloomberg top headlines. stock in the united states hardly moved today. nonetheless, a minor upset put the s&p 500 at record highs. they may reach a compromise with. u. creditors. crude oil rebounding earlier in the day. in ukraine, pro-russian rebels say they've taken control of the strategic town of debaltsuve. crucial fighting continues

despite the cease fire. that provides crucial transportation between rebel strongholds. snapchat seeking a new funding round, according to a person with knowledge of the matter who says they want to raise $500 million. at that valuation, the photo disappearing app would be the third highest in the world behind google. a meeting billed to be about advances in health care devices, between apple and mexican authorities. website zillow completed acquisition of trulia. it's now resamed zillow group. they cut 50 jobs as a result of

the acquisition. tech companies just 2,500 miles away in silicon valley. apple the latest tech giant, building a team of a few hundred people to work on the early stages of an electric car. some of those workers have been poached from car companies to work on what's being called project titan. apple, google, tess la and uber all involved, what role will the automakers play as they create

innovation centers in silicon valley. joining us now, tim hagen and john leonard. is there a different discussion about what innovation is for cars away from the auto industry than in the auto industry? >> i think so. if you look at the exciting pictures that emerged this weekend of a mini van decked out with sensors that allege to be an apple car, you see technology for doing very precise localization and mapping. some of the sort of parts of what's involved in the google car. so it's a different sort of set of techniques and skills than sort of the traditional detroit auto making industry. >> tim higgins, i love, i didn't think about this when the story crossed but then i saw your byline york came from detroit where you covered automakers you come here to cover apple. what are the similarities between these companies? >> apple has a lot of cash. auto industry churns through cash quickalism usually about $1 billion for a new car to created. >> $1 billion for a new car, for companies that have been making cars for a hundred years. >> it's an expensive time-consuming process. apple has billions, they're not short on cash.

they're used to doing supply chain management around the world, used to dealing with the retail network all over the world. in some ways they have a lot of things in place that global automaker would have. that said, designing and building cars are complicated, something that trips up even long experienced automakers with regulations, safety, marketing hitting what the consumer wants seven years down the road. it's a very long lead time for developing a car. >> car companies spend boat loads of money on r&d on top of con tearerships full of money, and the history of knowledge they've built up, is there an accumulated bit of knowledge or is it a calcified bureaucracy that thinks about the way they do things instead of thinking of what they would do with a blank piece of pain her >> when you talk to engineers in silicon valley, they feel

frustration with automakers. talk to guys in detroit and they say there's a reason we're so slow. some of it is safety and regulations and the challenges of putting a product on the road where people's lives will be in jeopardy if something goes wrong. >> more on that is it about the way that the cars are made? is it because they've -- they're wrestling with union contracts and wrestling with existing factors and wrestling with relationships with dealers they've got to figure out what to put into their pipeline as opposed to what to put on the road. >> tesla, you can say what you will about their business model but they have created maybe an interest in the auto space from new players who have said look at the challenges in the past but look at this new entrant they're able to do what they can do in a short amount of time. what can other folks do with a lot of money? that's where some of the excitement is coming from.

>> when you look at the excitement, what is it technologically you feel slike ready to be improved upon the most? is it battery, the duration of the battery, self-driving aspect or road awareness? >> i think it's safety. i think that the number of lives lost to traffic accidents, over 30,000 per year in the u.s. alone, over a million worldwide is a tragedy. i think with a better -- with better sensors and artificial intelligence coming online, we should have the cape to believe the radically reduce accidents. edge that's the thing that's exciting about what can happen now. >> safe city a great thing to talk about but apple, google and other companies are looking at the idea of what that user is doing with the time then they're driving. these are companies that want to create a business where your digital life is at the center of their devices.

when you're driving to the point of safety, you're not able to fully engage in a digital life tile stile. if you're pushing a product that allows people to be in that space throw autonomous driving or other functions, that opens up commerce. >> it's a horrible irony that companies that are responsible for so many accidents due to their devices are now looking at getting into the car business. you've witnessed what goes on in detroit and seen the engineering centers in silicon valley is there a different pace of innovation in silicon valerie? >> i think so. a silicon valley investor wants return in 1 months. google in building its small part for theship -- in building its small cars are partnering with companies in michigan. there are parts that silicon valley will be good at and parts that the sort of more eastern u.s. industries will be good at and it could all come together. >> interesting times.

thank you both very much. drone delivery is dealt a new setback. new drone proposals, what it could mean for companies like amazon and google, thinking about what goes up in the sky, next. ♪

>> i'm cory johnson, this is "bloomberg west," here's a check of our headlines. greece's government requests a -- an extension of its loan agreement for six more months. it's a step that could ease the standoff over greece's financing. the positive outflow is greek banks are celebrating.

the u.s. subsidiary of swiss food giant nestle will stop putting artificial ingrowth greed yents in candy. instead, they'll use natural ingredients for 250 products including butterfingers, crunch bars and baby ruth. there's a change in china's market, the top smart phone vendor last year edging out samsung. but in the last quarter, news gets worse for samsung. they've fallen behind apple and two other companies. skies getting a lot more crowded. the f.a.a. released guidelines for repeating commercial drones into air space. peter, the rules are not as stringent as some people might

have thought they would be. >> that's right. a lighter touch, at least that's what the f.a.a. is trying to -- to label these rules as. you know how widely anticipated these rules have been for months, even years. they've been waiting for the f.a.a. to outline exactly how they'll allow drones in commercial space. to some it may suggest a lighter touch from the f.a.a. but there are also critics that say they're too draconian, limiting the opportunities for commercial entities to use drones. walk you through some of the main specs here, the drones in question, must weigh less than 55 pounds, operator must maintain line of slight, operators must be 17 or older but don't have to have a pilot's license, they have to pass a written test and submit to the t.s.a. for vetting as well. this is, again, rulesing zines -- guidelines, not as tough as they expected for the f.a.a. but

still a long process from here. >> really interesting stuff. i can't tell you, around here there are so many companies working on this big idea of drones and they've been waiting for these rules. maybe the roads, or the skies, are open. i'm going to duck. i'm too tall for this new world. what do the new rules mean? the big guys like amazon and google, joining me now from washington, michael drobek, part of the small drone coalition also senior policy advisor at akin gump. what's in these rules that are good and what's bad? >> i think the fact that we have rules is in and of itself great. it gives us a platform upon which to build. i would say that there are some problems to the extent that the rules will prohibit operations

of -- commercial operations of u.a.v.'s and drones when there are personnel on the ground that are not associated with the project, which essentially will be all commercial uses. that's a real problem. there are also some suggestions that there will not be the ability to operate outside the line of sight. which means that it has to be a visual eye. the actual person has to be able to see the u.a.v. in the sky. >> so the very notion of the amazon drone that brings you your box and drops it at your front door and hopefully doesn't clip your poodle, that's out with this proposal. >> yeah. that's out. exactly. i think what most people believe and i think is true is that automation is going to be the future of this industry. for delivery, for you know precision agriculture, for, you

know, pipeline inspections, for disaster management, search and rescue, there's a whole host of purposes that u.a.v.'s can be used for. i think we have work to do now. but the one thing i'll say is that the f.a.a. was great in not touching the ability of recreational users to enjoy u.a.v.'s for aerial photography and digital photography, it's wonderful. >> but there was a report today that says there's over $100 million invested in the drone business in the last year. $100 million. no one is doing that because they want another frisby. the whole idea is we can find a cheaper way, safer way -- at least cheaper, but maybe safer as well, to inspect pipelines that have to be inspected to check for leaks. there are things that could be done so much more often because the cost would be lower. is there a sense the f.a.a. doesn't want that happening?

>> quite the contrary, the f.a.a. and the evaluation -- in the evaluation of the proposed rule said that they are going to save lives, this is efficient, and in fact, they said this u.a.v.'s can be used for cell tower inspection, pipeline inspections, things that are producing fatalities now which can be stopped with the utilization of this technology. a lot of promise here. i think the only thing we have to keep in mind is that this is a proposed rule. it's take, you know a series of months, i'm hopeful that we can get it done as quickly as possible but i don't think it will be this year. other couldn't i -- countries are already operating commercially even outside the line of sight. we are still far behind other nations. >> in terms of privacy, what do we want from rules about drones?

you work for two of the companies that support you amazon and google, have notions of privacy that are different between them, let alone different from what other people might want. >> so privacy is of fair importance. we all recognize that. and the administration and the president put out an executive order which we thought was very thoughtful on the issue of privacy, you know, essentially it says you cannot do something that's outside the expectation of the consumer. and i think we are experiencing this across technology. which is, you know, aerial vehicles are not unique to the privacy issue. our mobile phones, cameras helicopters, you know, cam ro on a stick, these things are all -- have the potential to invade our privacy. i think the reality is the industry is ready to work with the government, work with the ntia, on developing real clear

standards on privacy. >> michael, thank you very much. google has taken another moon shot, not just drones, but how about balloons, to bring the internet to millions of people who don't have the internet. ♪

♪ >> could you really check tumblr in papua, new guinea. google is trying to launch high-altitude balloons to bring internet to places that don't have access.

>> the science of ballooning is one of the world's oldest technologies, sending humans aloft for centuries. now imagine a fleet of unmanned balloons, solar powered, equipped with special antennas so they can talk to each other and to earth. all to deliver affordable internet access to the most remote corners of the world. >> there's four billion people on earth who don't have access to internet and we think that we should try to be part of the solution. >> google's part of the solution is project loon, born out of google x. it's not a pie in the sky idea, it's happening now. >> in many ways the balloon is just like a cell phone tower on the ground, except it's 65,000 feet up. >> how many balloons do you have up in the air right now? >> right now, about three dozen balloons. >> the plan is to have hundreds of them soaring through the stratosphere, connecting earthlings down below. >> the first six balloons all burst when they reached

altitude. the data was relatively low. >> fast forward, some balloons have been aloft for 1070 -- for 170 days. there's nothing obviously different about them but they could be key to stronger, faster internet. >> our speed has increased dramatically, it's now enough to stream videos, down to the phone you have in your pocket. >> the balloons fly at 65,000 feet, twice as high as an airplane. controlled by a command center at google headquarters. what are we looking at here? >> this is realtime data showing what the winds are doing around the world. >> googlers man the center 24-7, charting balloon paths, tracking wind, and communicating with air traffic controllers as they crisscross global air space. how are responses to countries to you flying in their air space?

>> countries love having us come. we've had multiple companies, brazil, india, russia, who have asked us to come and do pilot testing in their country. even china is interested in bringing internet to many other people in the rural area. >> it's that last mile that's being worked out and google isn't the only tech giant exploring the skies. they just invested in space-x, and facebook is working on internet beaming drones and lasers to show users a specific set of apps for free. >> anyone who is trying to help with the goal of reach manager people in the world is great. >> the skeptics would be like, you could show them google ear version of the internet >> no, we provide whatever son the internet they can get. >> if so, the question is why? can google make this a sustainable business or is it a charity? >> it's not a charity. there's revenue, we're pairing

with telco partners, and there are fees users pay that will be split between google and telcos. >> there are people so remote even google can't reach them. >> every country that has a telco in it somewhere has spectrum and our balloons can reach the hallest mountains, craziest islands, that's the cool thing. emily chang, bloomberg, mountain view, california. >> google is not the only tech giant attempting to bring internet to the corners of the earth. facebook founder mark suckerberg also racing to wire the world. the n.s.a. may be hiding on your hard drive. the story of an amazing technical achievement that led to one of their most far-reaching hacks afflicting computers across the board.

watch us screaming on your tablet, phone, amazon fire tv, everywhere. ♪

♪ >> you are watching "bloomberg west" where we focus on innovation, technology and the future of business. n.s.a. spyware may be hidden in hard drives around the world. researchers in a moscow based lab found spy software in hard drives made by to shea what -- toe sheba, western digital i.b.m., you name it. it would give the n.s.a. the ability to spy on the majority of the world's computers. we are joined by a representative from cybersecurity firm silent. this is fairly amazing stuff. even when you wipe the hard drive, it stays there.

>> that's exactly it, system of no matter what you do, no matter what tool you use to dry o-- to try to find it, even if you can find it and it's made to be stealthy, you can try to wipe it and it will come right back, because it's in firmware, which is usually put in it at the manufacturers. this is not the first time we've seen this kind of virus in firmware, it is the sophistication of this attack that gives it merit. >> it's not like they snuck in somewhere. it's right across the industry. every major manufacturer of disk drives, according to this report, is infected by this software. >> we don't know the full scope of it quite yet but certainly the indications are that there are real opportunities with these hard drive manufacturers

to implant this kind of stuff. now whether or not it was preproduction or post-production is a little bit up in the air and i don't think we'll know that quite yet. so that needs to be fleshed out quite a bit and investigated but what we do know is that the ability to get onto these systems is trivial and to stay there with persistence is trivial so it becomes easy for any adversary, whether a nation state or a simple bad guy cybercriminal, to do whatever they want to on the box. >> so what kind of things do you think the n.s.a. can pick up with a hack such as this as opposed to data hacks we've heard of before. >> could be n.s.a., could be israeli defense, as well, they have similar targets in the middle east and asia that n.s.a. or other u.s. organizations are. in terms of attributions it's hard to give smoking gun proof back to the people that are on

the keyboard but certainly possible, highly possible, and probable, that someone like n.s.a. is part of this we just don't know, i think, definitively yet. in terms of what they can do darn near anything. they could pretend to be the user of the computer. they could infect it in such a way to capture screen shots, follow your video, capture all your pass boards and become you on the internet, take your persona. they could infect your access to your bank account. you name it. it really is just up thth creativity of the adversary. >> so the adversary, again, they don't say who it was. i'd say the n.s.a. because "reuters" reported that, they're as good as it gets on reporting on cybercrime. but the reports out of russia listed the countries most effective. it listed russia, but also syria, china, mali, yemen, algeria and afinogenov -- and

afghanistan. these seem to be in particular targets of the u.s. is there a notion about what kinds of things they may be after because this is a hard drive attack, that tells you maybe these aren't places, these aren't adversaries who are keeping data stored at amazon web service or something. >> they definitely wanted to surveil the targets. it wasn't a destructive attack like sony where they wanted to humiliate, terrorize and destroy. they simply wanted to observe, surveil, understand what they're doing, create an intelligence channel for their military operations most likely and allow them to stay one or two steps ahead of the adversary what they perceive as the adversary which is the victim in these cases. the country, you're absolutely right. they have long been held a target, this series of countries, for the u.s. as well as strail and neighboring countries that are frently. it could easily be these two

entities for sure. >> we established what the entities are, how it works, sort of. let's talk about what it means for business. when it comes to disk drive manufacturers, it's different than selling software or microsoft saying to a customer in germany, hey, host your data with us. so what is the business of -- business effect on the companies that sell these devices which we now know to be infected? >> that's a really good question because i don't think we've realy ever seen this example in our industry before. we've certainly seen ader is sares hacking into companies like he novo and others and back dooring the actual bios, the bootable part of the computer, to put their own stuff in there but not to be coming from the manufacturers themselves. if that's truly what's happen we've got a big problem on our hands. that means that they're either inside the organization as a bad guy or an outsider, not allowed to be in there or they've coordinated and worked with the

manufactures to allow that type of work to be done. either way, it's a big story. >> i've got to think the best position to be in today is a salesman from a french struggling hard drive manufacturer who can walk into a manufacturer of computers and say, hey, i'm not western digital and i'm not toe sheba, and i'm not i. -- i'm not toshiba, i'm not i.p.b. -- i.b.m., we talked to somebody who, he didn't say sales were slowing but he said, we've got to do little bit more, we've got to assure they have we have places to store data that isn't in the u.s. so it's safe are the manufacturers fundamentally hurt by this? does it go beyond disk drives at all? are tech companies just going to have more trouble selling in europe? >> u.s. tech companies will be challenged, they have been since the snowdon event. it created such suspicion inside europe, northern europe, london,

that they are just skeptical of any u.s.based tech company especially u.s. security companies. so they often are now requiring to review source code, for example, of your product and you have to prove to them that there's nothing fishy or backdoor inside the code itself. the very brains of the product. and we're going to see that for a number of years until the snowdon effect dies down. >> banks and companies will expose their software to the very untrusted chinese government to sell it there, but that's the state of the world right now. we'll be right back. ♪

♪ >> billions of dollars of car dwow in limbo due to the port. labor secretary has flown out here to california to set until distribute -- dispute to try to get things moving again. we have a report from perhaps one of the most important western ports. >> this is the breakwater here. >> these are all ships? >> all ships. i see 25 or 30. >> being out here on the water gives you perspective on how much stuff is sitting on these ships that are going virtually

nowhere. according to hofstrau, one 40-foot shipping container, one of these blocks behind me, can hold 150,000 pieces of clothing, 3,600 electronics or 15,000 auto parts. when you look at ships they have hundreds of containers loaded onto them. >> it's going to be congested here. >> once an agleement is reached between the dock workers and port workers, it's not like all these ships can rush into port and get unloaded. it will take months for the shipping traffic out here to return to normal. >> shelby is in long beach still. there's a lot of stuff out there in the water who is feeling the first effects of this? >> basically, anyone who does trade with asia. the cargo ship is feeling the -- with asia via cargo ship is feeling the impacts. just to give you an idea, you've got furniture, apparel

electronics, footwear, we're seeing ripple effects across the u.s. economy. the retail industry says a west coast port shipdown would cost about $2 billion a day. automakers such as honda have announced that they're cutting u.s. output because they don't have the car parts and can't make the cars fast enough and the tech sector is being impacted because a lot of consumer electronics are shipped in these containers, things like d.v.d.'s, sometimes televisions game consoles. there are also electronic parts. anyone manufacturing electronics is being hit hard as well. if you look at the big picture 29 ports from seattle to san diego account for, handle about 40% of the cargo that comes in via ships, about 12 1/2% of g.d.p. if you look at those numbers it's a sense of how much impact this port shutdown is having. >> it is huge.

and i cover the heck out of this back in 2002 last time the i.o.w. got shut out. it's fundamentally a technology story this union, all the way back in the day, said technology is coming, we're going to get rid of the longshoremen throwing things onto ships, we're going to bring containers, have fewer employees, but you've got to promise us we can have another generation or two of a shrinking work force. that technology battle is still happening on the ports. >> yeah, it's really at the oferte this dispute we're seeing today. i'm told behind me, some of these newer cranes can operate themselves. they're completely robotic. but because of the union contract, we're still paying one or two men to operate the cranes at a time. so they're still fighting technology, fighting for their own jobs. but as you said the introduction of containers and automation of shipping continue it is to advance and it's really transformed this whole industry. >> it's a fascinating story,

with a deep impact. shelby, glad to have you on the ground at the port covering it. some other world news headlines, indonesia's central bank cut its main interest rate for the first time in three years as the nation deals with cooling inflation. indonesia's economy shrank last quarter. 14 central banks around the world have eased monetary policy since the start of 2015. french president hollande is ramming thru reforms by emergency action after facing criticism from his own party. the bills including easing labor regulations but critics say it re-- it eases restrictions on labor. the italian maker of nutella ferrero-rocher says it's not for sale after their owner died last week.

the son strongly denies that the company may be sold with nestle often mentioned as a suitor. >> i'm cory johnson, this is -- there will be more after the break. ♪

♪ >> i'm cory johnson, this is "bloomberg west." silicon, yes, just plain old silicon, has been the component of choice for everything from p.c. ships to smart phones. but there's a new kid on the block that may be more efficient, or superefficient replacement. it's called gallium nitrate g.a.n. the transitors made from it are said to be smaller and faster than silicon transsis tores. could this change the way the semiconductor industry works? do you call this g.a.n.? >> we call it gan. >> tell why -- tell me why it hasn't been able to used before?

>> it's just in the last few years been able to be grown on top of silicon. we can use the same facilities and get the same cost structure. it's not just more efficient but lower cost to produce than silicon. >> why? >> the chips are much smaller. more amount of wafer and the wafer is just processed -- >> smaller because they can carry more juice in a smaller space? >> yes. the electrons are more efficient, actually, is why. >> in terms of making this, what are the raw components? >> you grow a very thin layer of galliun nitrate, throw it in a foundry, do layers whike on any silicon chip. >> silicon below the g.a.n.? >> use a standard silicon wafer as a starting point. >> what changed to make this process more available, the

electrical properties have been known for a long time, yes? >> they have been but only maybe 15 years ago did somebody actually figure out how to grow this crystal on top of silicon and only a few years ago did we at e.p.c. figure out how to make it work like a power transistor. >> what was the key to that? >> some magic in the material science world, but making a device that could stay turned off until you wanted to turn it on was really the key. >> how so? >> if a device is turned on all the time until you try to turn it off, think about the short circuit and the minute you turn your switch on everything goes crazy. you have to make it work in the opposite direction and that's something at e.p.c. we did. >> now that the processes are drn processors are so small and so thin, does it make sense, you've got smaller wafers in terms of thickness and size across the wafer, does it make more to do multiple layers of different chemical processs?

>> yeah. it absolutely does. you can layer silicon and gallium nigh trite and do incredible things. with gallium nitrate you start out with about a thousand times advantage over silicon. and we're back drafting on all the improvements of silicon. >> and does it have to be fundamentally different to incorporate the g.a.n.? >> we run it side-by-side with silicon wafers in a foundry in taiwan. >> moore's law being a marketing dream as opposed to an actual scientific process, does this -- is this the story we hear every year of some new chemical discovery that allows for moore's law to continue, for processors to continue to get cheaper and fast her >> i think moore's lau -- law is a social pact more than anything else, you promise to keep doing more and more. sill condition is out of gas

there but gallium is just getting started. >> how did your company get started? >> we got started about eight years ago. we had no money, i found a company in taiwan that was willing to not only invest but let us use their silicon foundry to make g.a.n. products, which was a risk. from there, we were able to get rolling with very little capital. >> and an existing factory, one of the things we know about semiconductor, you need a new fab with a new process. old fabs are quickly depreciated because they don't have a lot of value when they're 0 years old. >> we use a fully depreciated fab but give it new life. we make products that are more than 10x better than the silicon products. >> how big is the market? >> the direct market is about $2 billion but we're expanding into analog i.c.'s, that's a $30

billion market and beyond that is digital, there are some technical hurdles to overcome but that's $350 billion. i think g.a.n. will take the whole piece eventually. >> what's the biggest thing from going from power to complicated an log to super complicated digital chips. >> to analog, no barriers, we'll have that in the next year or system of digital requires some fundamental development of the semiconductor itself and i put a question mark on it. >> thank you very much. >> thank you. >> time for the "b-west byte," adam joins from the newsroom. what have you got? >> 3,700, the numb of people who turned out in san francisco for a blowout for the company product hunt which is a hot arbiter of cool for a lot of new apps services and other internet trinkets released every day.

founded by 28-year-old ryan hoover who over the past year has made himself into an unconventional power broker in silicon valley. >> cool for nerds. so this helps people figure out what? >> it's kind of -- it's a way to find out all the latest products that have been introduced on a given day. some of them are clever, some wacky, some of them are a rubber babbed gun. it ranges if the interesting to the ridiculous. >> it's like a combination of craig's list meets the maker's fair meeting venture capital round? >> exactly. a lot of companies that post products on there, if they get popular can get thems invested in. it's kind of an example of the tech stuff going on. >> thank you very much. catch more "bloomberg west" right here tomorrow. ♪

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