♪ >> live from pier three in san francisco, welcome to "bloomberg west," where we cover innovation, technology, and the future of business. i am cory johnson. here is a check of your bloomberg top headlines. fed chair janet yellen defends the central bank against republican accusations she is too cozy with the obama administration. here she is testifying about a question about her meetings with treasury secretary jack lew. >> the federal reserve is independent. i did not discuss monetary policy or actions that we are going to take with the secretary, or the executive branch. we confer about the economy and

the financial system on a regular basis. we participate jointly in many international meetings including the g-7 and g-20. and we confer on matters that are coming before those groups. >> republicans have proposed bills to put the fed under more public scrutiny. >> greek finance minister yanis varoufakis says that millions are flowing back into greece after the euro bailout deal. not millions of people, but millions of dollars. he spoke to erik schatzker in an exclusive interview. >> yesterday we had a deposit flight back into the greek banking sector. 700 million to be precise. >> 700 million euros came back? >> yes, as a result of the news of this agreement. i haven't checked the numbers but it will be there. >> you are still down. >> it is a question of

direction. once you turn the tide you are up. >> he says he is counting on the european central bank to help avert default when it runs out of money next month. salesforce reports a fourth quarter loss of $66 million. revenues rose 26%, though. subscription and support revenues are up 25%. professional services is up 41%. salesforce is pushing data analytic, corporate social networks and marketing services. but is not helping them make profit. investors like that shares are rising. morgan stanley agreed to a $2.6 billion settlement with the justice department to resolve claims tied to sales of mortgage backed securities. they boost their legal reserves for the settlement by $2.8 billion. the settlement will cut 2014 earnings per share by $1.35.

there are a lot of deals going down in sunnyvale. drugmaker pharmacyclics is exploring options including a sale. they may expect as much as $17 billion. they make a fast-growing drug for blood cancer. aruba networks may get bought by hewlett-packard. after reporting lackluster earnings, we have learned that hp is in talks to buy aruba. they make hardware and software used to make wi-fi networks for typically hotels, shopping malls. why would they do a big acquisition? alex sherman broke this story. this is interesting coming when it does.

the company's future is a question mark. >> it is interesting that hp's first acquisition, first major acquisition since autonomy comes now after hp reports earnings. aruba reports earnings tomorrow, so we will have a chance to hear from aruba's management point blank. management is going to be asked. hp is going to be under the microscope. no matter what they did they would be under the microscope. aruba is the first stake in the ground from meg whitman's turnaround. it is interesting hp would theoretically move before splitting the company. perhaps that is because they

want aruba networks. and if they are selling, they may think we need to act now or risk losing them. >> hp is talking about improving operating margins, and they talked about it bumping up by a percentage point, but only when rounded. it was really like 15 basis points. buying money-losing aruba doesn't help you make more money, it helps you lose more money. what is it that they like? >> hard to know. we need to hear from hp. you can only guess. we can guess hp wants to add on -- their network business has struggled, down 11% annually. the enterprise wi-fi is hot. huge growth. hp would like to make a bigger footprint in that business to challenge, say cisco, which does a lot of work in enterprise wi-fi.

the idea is that if they see the growth moving in that direction, then it doesn't matter if they don't make money now if they make money in the future. aruba may be a simple integration. this may be a good first acquisition for hp to make post-turnaround because it is digestible and it is not too big. >> you look at stock compensation it is trading 18 times earnings. it is high for the group but not crazy high. they have a services business. you wonder if this is the kind of thing where they could add to aruba's potential because they have so many feet on the streets. >> that is possible. there is no reason aruba ends hp's acquisition surge. meg whitman say we are prepared to do acquisitions. they could make another

acquisition before the split takes place, if it really wanted to. we will have to see exactly the direction hp goes. again, we will likely hear from aruba tomorrow. >> i'm sure the bankers are knocking on the door. thank you. earlier i talked to jayson nolan for a dive into hp's earnings. i asked what surprised him most? >> the biggest surprise to me was the free cash flow guidance came down at $3 billion. a big component was the cost of separation. legal fees, consulting fees, there is a lot of work that has to be done to separate these companies. i think it is the right move long-term, but that was a big surprise. i did not expect $1.3 billion this year, and $2 billion over two years. >> let's talk about this free cash-flow notion. it is very different from earnings. free cash-flow is actually the

money that the company collects. there is a lot of back-and-forth that goes on on the balance sheet that leads to that. the free cash flow guidance sounds like it did not include the cost of layoffs. >> that is right. earnings took a hit on f/x. they priced in local currencies in foreign markets. that is a function of math and a strong u.s. dollar. this free cash flow thing when you lay people off you pay severance. it is a huge cost upfront and saves the company money. we have argued hp needs to become a smaller and more focused company. some of that is lower headcount. >> the free cash flow at hewlett-packard, for the last year or two, has had the benefit of factoring. it is barely mentioned in the quarterly reports. they have been selling their receivables, the i.o.u.'s from customers.

they have been selling that. it has been boosting free cash flow but are they running out of those tricks to boost free cash flow? >> they have extended payment terms to these customers. now it is more of a working capital and cash convergence cycle play. they can only take that so far to your point. that 10-12 day range is about as far as they can take it. we have seen very good cash management over the last couple of years, and there has been a little bit of a step back here. >> if you look at the way they have boosted that by selling receivables, maybe i am conspiracy theorist, but i look that a quarter of the ceo's bonus pay is based on free cash flow percentage of earnings. then they are selling the receivables. in my crazy to look at the profit motive? >> not at all. you can only do that for a certain amount of time. the company was obviously overly

enthusiastic when they gave that $6.5 billion free cash flow guidance raft knowing that they had a separate the companies they should have been more forthright. people were caught offguard by that. >> we can talk about this forever. enterprise services, the businesses which i think of those consultants marching, that should be a great business for them. that was horrible. down 10%. >> that is another one getting smaller. profitability certain to come back. they inked a big deal with a large investment bank. that is where hp can come in and sell service, sell software, and be better at selling the breadth they have. they need to stitch that together. >> that was r.w. baird analyst jayson nolan. "bloomberg west" will be back. ♪

>> i'm cory johnson. this is "bloomberg west." hsbc ceo stuart gulliver says his bank helping clients avoid taxes is the product of a different error. he said his own account has nothing to do with dodging taxes. >> it was purely about privacy. privacy from colleagues in hong kong, switzerland. it had no tax purpose whatsoever. >> gulliver says he is de-risking the firm after reports that hsbc sheltered money for tax invaders and criminals in the 2000s. sim card maker gemalto says the u.s. and u.k. governments were probably behind the 2010-2011 hacking attacks on its networks. comments came after report in the intercept blamed the governments for the hacking. it is a great story. it was based on documents leaked

by edward snowden. gemalto says no products were affected, there was no significant theft of data. that story would argue otherwise. radioshack's name is going on the auction block separate from the stores. the biggest shareholder has offered $20 million for the name and other intellectual property. standard general are also trying to buy 2000 radioshack stores. the drumroll beats for the fcc's vote over open internet rules. the vote is tomorrow. today the house energy and commerce subcommittee gave its two cents. joining us, larry downes, who testified this morning. what did you tell them? >> good morning. what i told them was the hearing

is no longer really about the open internet rules. what the fcc is doing is going for title ii, this reclassification of the internet as a public utility. that is more worrisome to many of us than the rules themselves. what i did with along with a former democratic congressman, urged the committee to act as congress only can do and pass bipartisan legislation that would solve the problem without resorting to these crazy legal theories. >> is this a crazy legal theory, title ii? >> no. i think the big isps have their smog machines out to befuddle and confuse the media and people. let's start with the basics. we don't have a lot of time. the question at issue today is whether an agency in washington dc is going to have the authority as it has had since the 1920's over telecommunications, to make sure

there is no discriminatory actions by the providers, to make sure now in terms of the internet that a favored few aren't going to be able to throttle content or block content, or prioritize content or determine what news you and i are going to get. the fcc has had this authority. the question is going to reassert the authority for the communications infrastructure of the 21st century. it's not rocket science. >> i wonder, the isp argument aside, we understand they have a vested interest, the argument is that title ii is not the best way to do it. are there problems with title ii? why is title ii the best way to pursue this? >> title ii is the best way because it is the only solid legal foundation.

the courts have told us that. if you want to do net neutrality rules, which the courts indicated is something the fcc is authorized to do, you have to do it under the right legal foundation. when the commission in 2002 voted that cable broadband was not a telecommunications service, it wiped out that argument. nobody can predict the outcome of what happens when these decisions go to court. if we are going to court, i want to go with the soundest legal foundation there is. clearly that is title ii. >> we know the lawyers are going to be paid for this. someone is going to go to court. why is title ii not the right way to pursue this goal that most everyone has for an open internet? >> i would have to disagree with the commissioner about this. what the court told the fcc, and what the chairman acknowledge

d through the summer was that what the court said section 706 is solid legal authority. he said that was a roadmap -- an invitation to reenact the rules under that authority. the problem with title ii is the supreme court, agreeing with the fcc, has said it does not apply to information services, does not apply to the internet. that means for the fcc to pull off this gambit it is going to have to fight a much stronger uphill battle in the court possibly to the supreme court. >> i want to read a quote. this is, in the hearings about secrecy. there was a quote from two congressmen that i imagine as arm in arm. they said together:

i wonder if you can help me understand why the fcc has not made the entire proposal public before the vote. >> i think number one, they are following the terms of the administrative procedures act. they have put out a fact sheet and we will know a lot more about it very soon. but you have to realize, this proceeding has the most complete record of anything the commission has done in years and years. i reference that 2002 vote. the commission has been compiling a vote ever since then. it has asked every question. every issue that can possibly come up has been vetted. you could not get a more complete record. there is no need to delay this. people who talk about other alternatives like legislation, my goodness. when has congress passed substantive legislation recently, anyhow? can you imagine how long that would take? net neutrality has been put out

on the sidelines too long. it is time to do it and do it now. >> i want you to sit tight. i want to continue this conversation. it is a good one and you know what you are talking about. back after this. ♪

>> this is bloomberg west. i'm cory johnson. we are talking net neutrality. former fcc commissioner michael copps and larry downes, we were talking about the secrecy issue. is this a big deal? it may be as open as the fcc has ever been, but is it open enough? >> i agree. he knows more about the secret workings of the fcc than most of us could ever possibly know.

it is not traditional for the fcc to circulate its orders ahead of a vote. they may still be making changes to them. while i would like to see the 332 pages that are allegedly in the report, i understand we have to wait until the vote. given the magnitude of what is happening, and the size literally of what is coming you can understand why members of congress and others are increasingly agitated about what is coming. >> is the interest over this issue something you think we are going to see in the future since technology is as important factor in ways it has never been before? >> i think so. isn't it amazing that we have had 4 million people contact the fcc for something as seemingly arcane as net neutrality, which is not an organizing

terminology, and going beyond that to title ii. that is because people really understand that what we are talking about is their communications infrastructure. their platform to talk to one another, to find jobs, to do jobs, to educate themselves, to take care of their health. it is integral to their lives. this is the infrastructure of the 21st century. of course they have an interest, and that is going to grow. i think as the media gives it more attention, like you have through the years and other media are starting to do, people are going to be more involved than they have been before. i think that is good, that is democracy. that is the way policy should be made. >> larry downes, do we need more interest from congress as a result? >> i think so. congress even a year ago undertook this committee, a starting point of looking at the communications act as a whole. it has not been significantly updated since 1996. that is a process that could take years to do. obviously we need 21st century regulation and that is up to congress.

>> larry downes, michael copps thank you very much. we appreciate it. bloomberg west will be right back. ♪

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♪ >> you are watching bloomberg west. we focus on innovation and the future of business. snoop dogg, mark zuckerberg, they obviously have so much in common. not least of which is there enjoyment of phil's coffee. phil's recently closed a $15 million funding round led by snoop dogg, jonah hill, and maynard webb. i'm joined by yahoo chairman maynard webb and the ceo of phil's coffee, jacob jaber. glad to have you both here. there is something going on with

coffee and technology. i don't get it but the success bluebottle has had, the success you have had locally, i have seen it on virgin america. what is it about coffee and technology that is coming together? >> part of the big reason is that we are in silicon valley, and we have most of our stores in the bay area. there is a lot of technology folks who come in and drink a lot of coffee, especially the engineers to keep going. that is a big part of it. >> why for you? >> this is my first venture outside of technology. i will tell you my story. i love coffee. i am one of those tech guys that loves coffee. i have a problem. i can't drink anything caffeinated anymore. i have decaf. that is being a loser, because you go into stores and nobody has a lot of choices.

my son told me about phil's, and he brought me a cup to a meeting. i said you put cream in this. he said i did not. wow. that is good. >> the quality of the product. there is more about the connection between technology. >> it is disruptive. >> what is disruptive? >> i think we possess a lot of similar values that some technology companies do. our philosophy is that the best coffee is the one that comes to your tastes. >> comes to your taste? >> it comes to each person individual taste. we have a platform for customization. we don't even do espresso because it is about what you don't do. we want to focus on doing a few things well. every cup is handcrafted. we convert thousands of latte

and espresso drinkers into phil's drinkers. >> one problem, it takes too long for me. i am always running from place to place. i go in there and have to wait. >> decaffeinated people can be in a hurry. >> it does not take that long. it can take 3-5 minutes for a cup. if there is a long line, it may take longer than that. there is opportunities for efficiency. we optimize for quality, not efficiency. but some folks don't have time. what we have is an app where you can order ahead or preorder and prepay for when you are getting up, choose the blend you want, choose when you pick it up, and you walk into the order ahead counter, you walk out. it is a two second visit. >> now i need a runner to do

that. >> it is interesting, to watch the explosion. my favorite coffee, cafe roma in north beach, no offense, a limited number of stores and so on. you are blowing up. bluebottle is having the same sort of slow food movement. at the same time, we see this explosion in coffee that i personally think is crummy, the green mountain stuff, machines are selling like crazy. toss in freeze-dried folgers and that is the biggest chunk of the market. more people are drinking instant coffee as opposed to the slow coffee that you are a part of. >> no doubt that there is a shift in the coffee industry. it is defined into waves. the first being the maxwell house, the folgers. the second being the starbucks. the third wave being some of the

folks you have mentioned intelligentsia and bluebottle. we are sometimes in that category. the big differentiator between the second wave and third wave is an elevation of quality and care for quality. it is not about efficiency. the other thing is a little bit more transparency. >> how are you going to scale? that works when you are boutique-ish. and starbucks felt they were in that excellent era at one time and then they scaled. how do you keep that as you get big? >> there is a fundamental difference between us and those folks. by those folks i mean second wave or third wave. the difference, what we believe we are in is in the people business. while we possess the traits of quality and care with the beans, the craft, the people, it is about the experience. it is friendly and welcoming.

it is not about demographics. it is about psychographics. >> i wonder if it is about what customer experiences we get and the technology speed thing. i wonder if the weight is a part of the good part of the experience. >> we love technology. we have a digital department that is very innovative. we have a great roadmap of ideas. we never start with technology. technology is a tool. we start with people and we may come to the point where we decide technology may help us optimize a certain experience for the customer or our team members. we treat team members like our customers because they are the most important people. you have to sell it in before you can sell it out. we focus heavily on creating a great experience for our team members. >> jason jaber. thank you. bloomberg west will be back.

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♪ >> i'm cory johnson. this is bloomberg west. lending club reported a very strong quarter of growth. revenue doubled to $69.6 million. the online lending platform posted a loss of $9 million in its first quarter as a public company. i asked the ceo what to make of this quarter. >> for our standpoint, we grew 108% revenue year-over-year. that was a faster growth we had planned for. we beat our own expectations. we also saw a lot of good marketing efficiency. better operating efficiency.

efficiency is increasing. and it gives us the confidence to put out guidance that would cause us to facilitate $7.6 billion in loans in 2015. that will be roughly the same origination as the previous eight years combined. it is a fast growth. we are looking forward to it and to continuing to deliver a great experience. >> you acquired a company called springstone. what did you get with that acquisition? >> we launched two new products. one was a small business lending platform. it had organic growth.

the other new product was the acquisition of springstone. it had us diversify into education financing and elective medical financing. it was an attractive area for us. with springstone we have inherited a great team with a lot of knowledge into these areas. eight years of track records delivering great customer satisfaction and a great product. the network of financial and medical providers, mostly dental offices, thousands of providers, they are giving us a great head start into building up a bigger distribution network for these products. >> you talked about a no interest loan that is common.

you felt it didn't fit well. it helps define what a lending club is. can you talk about what that was and why it didn't fit? >> thank you. what we did, it is an example of how we think about being customer friendly and transparent. a typical product and medical financing and retail finance in general is a deferred interest product. a promotional period of six months. if the customer has a balance outstanding at the end of the proposal period, interest rates get charged retroactively. that could be misunderstood by customers. it is not the type of product we stand for. after rebranding springstone we

wanted to make product improvements. we terminated that product and launched a no interest product that has no deferred interest, no retroactive features. for the first six months or 12 months, you just won't be billed any interest. that is a type of product we want to continue to have on the market. it is a great experience to our customers. >> what does the customer get? why is that experience so different? is the other way something of a trick or a surprise to them? >> that is right. what we stand for is a transparent product that is well understood by consumers in a straightforward way. the new product is considered easier to understand than the old one was. >> that was the lending club ceo.

now for a check of top headlines. greek finance minister jan the spirit baucas -- the greek finance minister says millions are flowing back into greece. 700 million euros flowed in yesterday alone. he sat down for an exclusive interview. >> last year, the economy managed, despite rumors to having achieved a surplus it , came to 1.5%. we believe given the state of the depression we have, the state of the banking system that , we have faced low levels of investment in this country, we have negative investment. under those circumstances, to arrest this negative spiral anything beyond 1.5% surplus for

the next five-eight years would be detrimental to the recovery. >> he also said he is counting on the european central bank to help defer default when it runs out of money. apple has been ordered to pay $533 million in damages to a company called a smart flash. a federal jury found the iphone infringed on patents. apple said that the company exploits the u.s. patent system. millions of people who are not customers of anthem may have been affected by the cyber attack against the company. anthem believes hackers accessed social security numbers and addresses of 79 million people. among those, 60 to 70 million were anthem customers.

the fbi says it is close to finding the hackers responsible. we'll be right back.

>> i'm cory johnson, this is

bloomberg west. smart phones and tablets have transformed the way television is watched. many are watching our show right now on those devices. it is also changing the way tv is made. tonight's episode of modern family was filmed on exclusively apple devices. >> it is funny, that seems to be the story people are focusing on. that was a minor part of it for me. the bigger story to me is the fact that the entire episode takes place on clair's computer screen. i find that to being the most interesting part of this. we wanted to do it in a way that seemed as real as possible. so we just used the devices that one would use in real life.

>> picking up a device is easy to do. it is extremely simple now with all the technology we have. i have a feeling producing this episode and directing it may not have been so simple. what challenges did you run into? >> there was a lot that went into this. the hardest part was coming up with a story line in which we could feature all 11-12 actors and still have one person's computer screen. once we had the original idea things fell into place quickly. the problem wasn't so much how are you going to fit every -- how are you going to feature everybody, but how are we going to fit this in one episode? originally we would have the actors shoot themselves by holding up the camera like one would do in real life. then there were other considerations about framing things properly and not shooting off the set. we quickly devised a method where the cameraman, we use the camera people to shoot them with

the phones, so it didn't like the phones were floating in space. the actors were instructed to always keep their hand on the cameraman's hand. that is how we did it. it was a very romantic day. was there product placement involved? >> other than providing the products that we used for the episode, no. this was done -- this was purely a creative decision on our part, just like the ipad episode was. i happen to be very techy and i like this stuff. we just needed a reason for phil to be waiting in line and it so happened to line up with when the ipad was coming out. it was a natural fit. i was face timeing with my

daughter in college and looking at my screen. i could see her and myself and my wife behind me. i thought this really paints an amazing picture of my life. you can tell a lot about me from this one screen. that is where the idea started. >> this is not the first time you have featured apple devices in your show. we see devices on television all the time but we don't necessarily think about the collaboration between technology companies and television. how important is that relationship? >> well, listen, you want -- it is a fine line. we are not here to sell apple products. that is not our goal in terms of this episode. they may advertise with us and that is wonderful. i know steve jobs was a big modern family fan. that was meaningful to me. i know many of the people at apple are fans of the show. we are very big fans of their products. really, this is much more of a

personal interaction than it is a business relationship. >> how impressive are these cameras that can capture an entire episode on television? >> i think the smartphones today, and not just apple, but other companies' cameras are amazing. most viewers would be hard-pressed to tell a difference. we have actually snuck in some footage from iphones in the past in our episodes, just because we needed a quick shot. it is hard to tell the difference. it is amazing. it opens up a whole new world for amateur filmmakers and budding filmmakers who are just beginning. you don't need that initial huge investment anymore. you can make a compelling movie on your phone and computer. all you really need is a great story and great characters.

and off you go. >> speaking of great characters shelby holliday did the interview. you did that with facetime? >> we had to keep with the theme of the episode. >> i love that. >> when we were talking i thought, before when we were sitting at the interview i was wondering, 30 minutes of watching somebody's computer, it is amazing, watching their screen, but how are you going to do 30 minutes watching a desktop? then we saw the clips and the show actually looks hilarious. it is amazing how fast things move around. claire is using facetime. it moves around. there has been buzz on the internet. people are excited. >> maybe i will watch the show for the first time. thank you. we appreciate it. you can get the latest headlines all the time on your phone and tablet, bloomberg west tomorrow. ♪

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