alisa: you are watching "bloomberg technology." let's start with a check of your first word news. president trump will approve the release of a memo that alleges surveillance abuses by the fbi. the white house agreed to some reductions with the house will be responsible for releasing the memo because it is a legislative document. house minority leader nancy pelosi dismissed it as a cover up republicans claiming the motive is to protect president trump. the memo was prepared by republican staff. democrats call it cherry picked. former massachusetts governor

and gop presidential nominee mitt romney is fueling speculation he may step back into state politics. in a tweet today he said he will make an announcement on february 15 about the senate seat skin to be vacated by orrin hatch. two students were shot and one wounded critically in a los angeles middle school classroom. police took a female student into custody. it happened just west of downtown los angeles. global news 24 hours a day powered by more than 2700 journalists and analysts in 120 countries. this is bloomberg and bloomberg technology is next. ♪

emily: welcome to "bloomberg technology." apple's brand-new headquarters with what else but apple earnings. i just got out of a meeting with tim cook i will bring you highlights. let's dig into the numbers. apple selling slightly below estimates. the average selling price was $796. the company hitting an all time revenue record. $88.3 billion. i want to bring in cory johnson in new york. i want to start with a quote from tim cook, there has been concerned about how well the iphone x is selling. he said it was the most popular smart phone launch since november. every week it has been the top-selling iphone in the world.

i could not be better. prouder. -- what is your takeaway? >> it sounds solid to me. it is incredibly sophisticated. it has a higher price point. the replacement cycles are slowing. it is a strong number. people like to point to the high price point. maybe it has deterred consumers from upgrading. the hardware is not the biggest chunk, it is the service. emily: we talk about the performance in china. there has been concern the price was too high. when i asked about that he told me the top five selling smartphones him everyone was an iphone. it is the same in the u.s. and japan. the top six out of seven smart phones are iphones. what do you make of these numbers given all of the fuss over whether this was too expensive?

cory: it wasn't too expensive. there are a lot of different ways to look at this. apple made a lot of money selling an expensive phone. they are defensive about what we are hearing about a slowdown. about the fact unit sales were down, even though the phone is a technological marvel. i think that julie's point is important. looking at the competitive world, apple is trying to move its financial model towards a service model and away from being purely hardware. the introduction of new hardware isn't about the hardware itself, it is the trojan horse to services customers will pay for. we have to evaluate not just how well the phone sells, but their ability to have other revenues. that is going to take longer.

we did not know when the iphone launched that uber and instagram would be invented in become the killer applications for this devise. we might not know in the first 15 weeks of the existence of the iphone x what the killer application is, but it is the stated goal the it will be an apple app. the next uber or instagram will not be created by something else but will be owned by an apple profit, not just the hardware sales. >> i did ask about battery gate. department of justice, the fcc are asking questions about the iphone battery replacement issue.

he could not comment on the specific agencies but said that there are agencies around the world asking questions and they are cooperating with that. he singled out the apple watch. this category would be the size of a fortune 300 company on its own. how optimistic are you about non-iphone products? >> this builds on the point cory was making. cory pointed out, the services. that makes these devices more valuable. the more devices a consumer owns within apple, it is more valuable and more likely apple is going to be able to sell music, payments, things like that. both of those are important. emily: apple is bringing billions and billions of dollars back from overseas thanks to tax reform.

i asked tim cook if that was going to be changing anything about m&a strategy. he pointed out we have acquired 19 companies in 2017. that is a company every 2-3 weeks. we stay constantly in the market. we look at companies tiny to big and would improve the life of a customer, can it help us build better products? that is how we decide. cory: fortune 300. that seems ridiculous. i understand what he means by that. on the day when they take the timing sign of of the building and he points to lists that do not exist anymore him of the cherry picking to dress up the results as being better is stretching. apple sold fewer phones after the biggest release they've ever had.

they sold fewer phones than they did the year before. meanwhile, some of that has to be about price. they charged a lot of money for this phone. they brought in a lot of money for this phone. revenues are fantastic. it is all the things you expect from this company but the success of the phone is tepid. the success of the watch business fails compared to the phone. the phone is a historic me -- historically amazing in terms of growth. fundamentally it is going to be about the phone sale going forward. the reduction of the guidance in terms of revenue is so much below what wall street has expected in terms of growth based on where apple has directed them, it shows apple is up against it a little bit with this expensive phone. emily: how much does it matter that upgrade cycles are getting longer if they are bringing in record amounts of money and that money is coming in from different parts of the

businesses? maybe it isn't so much as it was in the past coming from the phone but it is coming from services and apple watch. the homepod is just about to be sold in a few days. julie: it is not just -- the smartphone is the biggest chunk of their revenue but they are creating more. services continue to grow. one of the other things that you are running up against here, traditionally hardware has been on the size of three, how shiny it is, things like that. it is getting harder to differentiate. it is becoming more important is the experience on the phone. we may think they are awesome but there is a long way to go. they put a lot of cognitive load on consumers. the things that will make

experiences better over time are going to be subtle and hard to communicate to consumers because of artificial intelligence and machine learning and it is going to be subtle. using the phone has gotten easier. it is a better experience, but they can't pinpoint why. it becomes harder to sell these devices even as they are getting better. then things around the ecosystem. it is getting harder. emily: all right. got it. julia, always great to have you here. thank you for breaking it down. cory sticking with me. we will be talking about amazon. jeff bezos was to double down on alexa. we will have more on that, next. this is bloomberg. ♪ emily: welcome back.

we are talking now about amazon earnings. amazon having its strongest holiday quarter since 2009 fueled by e-commerce and cloud. jeff bezos wants to double down on alexa. back with me, cory johnson. breakdown amazon earnings for us.

cory: we spent 10 minutes talking about how apple is trying to make the iphone x work better and how they are lowering guidance. now we are talking amazon, where the biggest success story is what happened with this giant platform and the skills available. we are at this important inflection point where the most important device in the world, this is the moment. this is the most moment and technology we have seen in a decade. we are -- the leader in technology is no longer apple. this inflection point is so important because computing is moving to the phone to voice. you can see the results of both companies today. the apple-like platform was open to multiple developers and hardware developers.

amazon is reaping the benefits of this. of american households are amazon prime members. amazon alexa is part of that ecosystem. they are already in the place apple wants to be. >> i did have a fairly long conversation with tim cook about the homepod. it is out to the public in a matter of days. do you think you missed the category, that you let amazon get away with that? he said i do not think we missed anything. he talked about this idea, a personal assistant is your phone. they have siri. the conception of home music and audio devices. cory: but they missed it. emily: history still has yet to be written. we do not know how it is going

to do. what do you think? can they catch up? >> alexa has over 4000 home connected devices now. has apple missed it? they sure are looking at taillights. they are going to have to do one thing, attract massive amounts of developers to their platform to pay attention to home pod and then do the work to get people on the platform. i want to add one thing to what cory said. aws grew. as it gets stronger, it brings developers in to enable things like alexa. now they are in this cycle that gets stronger and stronger. that is a big move. is it unassailable? no.

but apple has work to do to grow. >> we are listening to the apple earnings call. tim cook is on the call right now. he is talking about service revenue. they are going to double service revenue. they put up 4 billion in the quarter. to your point, amazon's business here, web services does fantastic. they are also learning about what everyone is able to do. this notion of a hardware independent service business in the world of technology separate from selling people a lot of stuff, these guys are clearly the leader and growing at a fantastic pace. they are throwing off a 10 of profit.

--ton of profit. emily: tim cook told me we already have a personal assistant in 1.3 billion people's hands. moving on, let's talk about the cloud. we will get into that was apple that results. dig into the aws numbers for me and how quickly this business is growing. >> it is growing at a large scale. in terms of just margins, amazon loses money basically in the selling of stuff. the margins of 26.5%, terrific and better than last year. even for aws it is important. everyone is doing more. compare that to the rest of their business, it drove the rest of the results. amazon was profitable selling packages in the u.s., very profitable at aws and lost money in europe. they had a fantastic cash flow.

they got 7% rise in year-over-year. free cash flow was down because they spent money building stuff so we will see more quarters like this. amazon is not working in the last quarter. amazon is working on a quarter three years from now. these results show what they were looking at three years ago. apple is still trying to get out a speaker product that they missed the date of early in the year. >> my bet would be those margins expand going forward. as they start adding more and more tools developers can use and charge for. get the developers in, then get people when they are managing to

use more of amazon's developer tools. that could be scalable, even more than it has been. emily: speaking of investing, amazon saying their new headquarters will cost $5 billion. the company will bring in $200 billion in sales this year. cory johnson, you are sticking with me. outback earnings, next. this is bloomberg. ♪

>> google cloud has reached meaningful scale. i'm excited to share it is a billion dollar per quarter business. google cloud platform based on publicly reported data, the fastest-growing major public cloud provider in the world.

and emily: google ceo talking him him him about the cloud business. we are live in cupertino, california breaking down off of that headlines. eric schmidt stepped down. he remains on the board but shares are down after profits missed estimates. cory johnson is still with us. how are you looking at this here? >> bottom-line, the other parts of the business are costing too much. expenses grew faster than revenue. what you see is, while some new and efforts are making great

progress, particularly the clip about their cloud, their cloud business is growing. but they are the number three in a three horse race. they need to do a lot of work to get that business to contribute on a scale that is going to allow them to not only continue to grow but pay back the investment they have made in that business, which is still what you are seeing in the numbers. youtube has had a tough year. they have to consolidate the businesses, they have in making bets. the bottom line, the business is not scaled the way they need. emily: i just got off of a call from the after that ceo. we talked about the shares down. she says we are proud of the overnight revenue growth. we are staying focused on long-term investing for businesses and intra-quarter variability will be what it is. how concerned should we be?

cory: i don't think terribly. some things in the numbers, they looked reasonably positive. two things that are the most important metrics, the click growth and the value of the click. what we saw from the click growth, at the google site and other sites, it grew faster than last year. 43% is better than the 36% in the year-over-year change. i think that is pretty good. more encouraging, maybe i am looking for good news here, if you look at the devaluation of the ads, users pay less and less.

unlike facebook, the price per click, the how much marketers are willing to pay, they don't tell us the number but they show it is not getting worse. it was down 14%. that is less than recent decreases we have seen. i'm sure they are hoping that decline. -- that decline that will stop. emily: all right. thank you both for joining us. we will continue to watch the apple that shares fall and bring the headlines to you. we will have more on apple. tim cook is speaking. more about apple coming up. ♪

the bank of japan announced its first unlimited purchase operation since july. it offered to buy tenure debt at 0.11%. changes at the top, ceo is to step down and be succeeded by chief financial officer. he will become so may determine and the change will happen on april 1 at the start of the new fiscal year. chief financial officer will become cfo.

as a martin says it is already talking to manufacturers as beijing tries to improve automotive performance. sales in china climb 90% last year. president trump is to allow the publication of a republican memo that claims the fbi of used its powers in the russia investigation. memo is asay the misleading attempt to undermine robert mueller's investigation. fbi director had urged the president not to release it. day.l news, 24 hours a this is bloomberg. let us take a look at how the markets have been trading. >> the bleeding continues. this is rising yields.

we do have the indian buy and sell up deepening. while the blg did step into stem the rise, that is not showing up yet. we're seeing disappointing earnings from apple. samsung is the biggest drag and asia. it is falling the most in a five weeks. otto is rebounding. sydney among the few bright spots today. the index weighted towards that. property stocks are shredding --

sliding. we are waiting on the u.s. job report. at the top of the hour, this is bloomberg. ♪ >> you are watching "bloomberg technology." apple's brand-new campus. they have been moving in here over the past several months. this will house of 12,000 apple employees. our reporting its first earnings report from this new campus. i got to sit down with apple ceo tim cook for a lengthy conversation or did we are monitoring amazon and out of the earnings. amazon shares up and alphabet chairs down. all of the focus is on that iphone number.

record-breaking revenue, $88.3 billion in revenue this quarter. i am joined by our bloomberg tech editor in san francisco. i know you have been digging into the numbers. >> it is all about the iphone x. at first we thought the numbers were not good. there was a weak forecast but when you look at the average selling price, that implies when shoppers are buying an iphone, they are buying the top one. emily: that is something tim cook did emphasize. the iphone x has been the most popular every week since it launched. i asked about the questions, slightly below estimates. people have been concerned. he pointed out the iphone is still the top five selling smartphone in china.

same in the u.s. and japan. he said he feels great about it. the reality is the upgrade cycle is getting longer. what does that mean for apple long-term? >> if you look at total iphone sales, they were not great. the implication is overall demand for smartphones, it is not that great. if you think about it, selling a more expensive phone, unit sales do not grow as much. total revenue will grow. that is a great strategy. so far it is working. the iphone 10 has augmented reality. that is where they want to go. the more people they have, the better for that strategy. emily: and the homepod is coming out. release was delayed. a lot talk about whether they have missed the market, a claim tim cook would dispute.

what is the outlook for the homepod? >> the total iphone number is important when you are talking how many accessories apple is going to sell. the more iphones, the more iphones people have the more likely they will buy a home pod. there is an uphill battle. apple, most customers are very loyal. that may give the homepod a chance next holiday. it was not great that they missed this holiday, for sure. emily: we talked a little bit about m&a. apple is bringing back billions of dollars back in cash overseas due to tax reform. they talked about how they would reinvest. i asked what does it mean? would they consider buying a big company?

he said we are always in the market. they bought 19 companies last year, one company every 2-3 weeks. they are continuing to look at companies, how does this add to our portfolio, does this improve the life of our customers? apple has not made large acquisitions. do you read anything into the remarks? that maybe the strategy is changing? >> it is an important comment. bringing this cash is going to make it easier to put it to work. the strategy going forward, they need another big hit. transportation, self driving cars, and entertainment. streaming video. they have a lot of work to do. a big acquisition would help them. >> they have been investing heavily bringing on new talents.

alastair, thank you for breaking it down for us. we will be talking about paypal. we talked about the big news of the day. ebay transferring its primary business to a competitor. back with paypal after this quick break. this is bloomberg. ♪

emily: welcome back. life from apple park, in california, moving on to paypal. yesterday the big news, ebay is transferring its primary payments business to a competitor, away from paypal.

i spoke to john rainey and asked what this means. >> the main takeaway is this is a natural evolution of our partnership. it is the next chapter. this was anticipated, built into our plans and does nothing to change our long-term earnings. emily: there is concern about how it will impact payment volume and how you will replace that. how much comes from ebay? >> today, ebay is 13%. it is the slowest growing part of our business. if you look at 10 quarters since we separated, the average growth is 4%. the rest has been growing at 23%. if you fast-forward, you can see they would be a smaller piece of our business. there's a couple of key points.

we will still be a part of ebay's business. we have a term sheet. the largest part of the business we do with them today will continue. that is the most profitable part. two other things, this allows ebay to partner with someone else. large market, most already do that. this is a natural extension. it allows us to partner with ebay's competitors with unfettered ability. we have not had that before. emily: let's talk profitability. there is concern. how will this impact paypal? >> we don't believe that, this is well within our plans. we continue to grow these faster parts of our business. we believe it doesn't do anything to change profitability after the operating agreement. emily: when will we be able to

buy things on amazon with paypal? >> to the extent we have unfettered ability to partner with many marketplaces after that, hopefully we can. emily: how has tax report impacted you? we are a global company. we generate a lot of cash flow offshore. we will see our effective tax rate stay in the same range. 17-20%. cash taxes will go up because of the guilty tax that will be imposed internationally. emily: you have more flexibility. what might you be interested in? >> all of the above. there are two categories. expanding geographic footprint. we are a global company. we are in over 200 margaret --

markets across the world. we would love to be bigger in some markets. there are a lot of complementary services like bill pay, that are good for our customers. >> that is the paypal cfo earlier today. now to cory johnson in new york with more on alibaba earnings. >> a big day. they failed to impress the company's gross margin, slipping. it rose 18% in the fourth quarter. it was interesting deal. they dropped the profit-sharing deal. they are quite a take 33% of the business and stop taking cash. alibaba is a big part of that index, how big is it to your index?

>> it is the largest holding. about 9%. it and tencent are neck and neck. they are almost always at the top. >> you were in an interesting position. maybe you do not care if it goes up and down. these confusing transactions, can you explain what is happening, giving up cash payments from financials, handing over a third of the equity? >> i have not had the chance to dig into the details of it. the original relationship has been complicated. that is part of the chinese regulatory environment about ownership of certain financial related entities. either way it is still a big deal to them. online payments is part of the

entire story. cory: currently, what is more important? advertising or e-commerce? >> e-commerce is the business, the most profitable piece and contribute to $7 billion of this quarter. that is the bread and butter and it will continue to be so, and help fund other initiative you are seeing. cory: isn't it just advertising on the site? it is not actually shipping of goods. >> it is a meaningful part. one of the stories we saw, advertising spending now exceeds rmb spending. so yes, they generate revenue from multiple sources but it is people going on their phones.

you have a billion chinese people walking around with a shopping mall in their pocket. margin made and the middleman between goods manufacturers and the buyers. cory: the majority is advertising. but it is interesting, certainly. all of this m&a is, when you read the financials, you read about these deals they've done. it does seem to follow mergers and acquisitions. it really is moving. >> it is a moving story. the story is a significant size. these guys have been prolific investors into other internet companies. they have well over 200 investments.

you have both companies investing in the uber of china. that is part of the nature of the business. in some ways they are both internet companies and venture capital firms. they have been more investing. there's a lot of acquisitions of those companies. a lot of the police -- companies have gone public and gotten acquired. that is definitely part of the story and the businesses. cory: thank you. still ahead, we will dive back into big stories, more to come on all of those. he says the company is targeting down to zero with repatriations now possible to the tax law.

this is bloomberg. ♪ >> we estimate making a

corporate income tax payment of $38 billion on our cumulative past quarter earnings. this amount is similar to what we have been accruing on those earnings in our financial result. emily: the apple cfo on the apple earnings call breaking down this quarter's results. tim cook talking about this battery replacement issue. they decided to cut the cost so users could cheaply replace them

in the midst of battery gate. he said we did not consider what it would be due to upgrade rates. we did it because it was the right thing to do for our customers. in our meeting, he told me there are agencies around the world asking questions. they are cooperating. of course, the concern is, what does this mean for upgrades over the longer term? cory: there is the issue of customer trust. they made my old phone slow. they are trying to make me buy a new one. they made my old devices seem old. i think those things matter. i wish all ceos talks like tim cook. i wish like every ceo talked like tim cook.

you want to see that in the behavior. customers have questions about what is going on. that can hurt people. do they want to be a purely apple home? this apple devise, they want to have a bigger role. amazon, having great success. i'm sure no one is noticing that more than apple. emily: he told me everything they have done is simply to improve the customer experience. there was some discussion about tax reform. what would you highlight? cory: i heard those comments and thought i thought my tax bill was bad. the thing that i am struck by is the broader conversation when people in washington are saying they are putting their vote in america. they are going to be taxed on this money whether they bring it back or not. the notion is, they are being

forced to do this. that is why they are. they have been asking for a better way to bringing this money back. it is not like they have a choice in the matter. amazon calls underway as we speak. they are just about wrapping up. what are other things you would pull out? >> my big takeaway, talk about companies changing technology, this does seem like a seminal moment. apple should have owned voice. apple had this product with siri, like nothing we have seen before. with alexa, with open floor design on software and hardware,

opening up a platform to drive services through these speaker devices of all sorts. your house is surely littered with this stuff. they have had terrific success and a great consumer experience. the fact amazon says they are going to double down here in the same hour that apple is saying they are not going to sell as many phones as they expected, it is striking on the face of it. there is a different direction with these two massively successful technology businesses. emily: we use alexa for knock knock jokes and music. cory: i love jeopardy. that is a big one. emily: i have not tried that.

cory: it is a fun one. emily: i do have one more thing i want to talk about. breaking up the boys club of silicon valley. i am so excited about this. something i have been working on about how and why women have been left out of the greatest wealth creation in the history of the world. we will have special coverage, diving into these issues. i can't wait to share this with the world. thank you for tuning in. live from cupertino, apple park, apple's new headquarters. that is all today. we will be back tomorrow. ♪

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