tv Bloomberg Technology Bloomberg October 5, 2018 5:00pm-6:00pm EDT
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emily: i am emily chang in san francisco. technology."mberg in the next hour, the big china hack revealed by bloomberg. the supermicro impacted software and facebook and apple were hit. another tweet storm from elon musk. he fired off more than one dozen messages lashing out at the sec and short-sellers. could this jeopardize the settlement he struck days ago? ipo planssic's
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continue to surge. competitor and investor and we will ask what it means for them. first. , to the top story we're looking at the bombshell report about how china pulled off the most significant known supply chain attack ever on u.s. companies. we now know china managed to install a hack in the server centers of nearly 30 companies but they did not stop there. malicious software was introduced and the code allowed attackers to secretly take over communications. one customer targeted was facebook which told bloomberg in madetement that they were aware of malicious manipulation related to supermicro hardware from industry partners through our threatened -- threaded intelligence industry. revealed itigations has not been used in production
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and they are in the process of removing them. in washington, we have one of the authors of this investigation and the senior policy at aech company. we are reporting that we are looking at three potential avenues of attack year. including the hardware hacks that we have talked about yesterday. walk us through these avenues of attack. >> thank you for having me on. here's what we're looking at. we reported yesterday on the added chips, the melissa's -- chips,'s -- malicious but that was not the only element of this attack. it was the most significant. according to u.s. officials, according to what the chinese hackers also allegedly did was in fact a supermicro customer portal where customers would go to update the firmware and
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software on the server. this meant if you did not get the motion is chips in your network, you might have gotten these other elements of the attack. it is a way to attack hardware in three different ways to access sensitive networks. it is a sophisticated and brought attack. -- broad attack. emily: talk to us about how apple specifically denied the hardware hack, but they haven't knowledged a malware hack. explain. jordan: we reported apple discovered three different types of hardware manipulation involving servers. one was the discovery of the malicious chips and two was the presence of outdated firmware on the network card of their servers. was the presence of malicious firmware on the
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supermicro website. these were all attacks that happened in 2015 that apple was aware of. what they mentioned in their statement, and as anyone who had addressed the story knows, there is a big gap in what we report and what apple and amazon say. what apple says happened was that there was a minor software infection a year after the events we describe from the same that iscro portal, and that is the reason apple says it cut off supermicro as a supplier. emily: as jordan and my colleague has reported, there is an open investigation into these issues. what are you hearing in the intelligence community about this? ofi think there is a lot debate. the problem is that the information needed to verify this is so sensitive whether it is companies themselves not knowing who having access to dissemination -- information. unlikely that we
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would see people having this information to verify that this happened. emily: how did this play out behind the scenes do you imagine? jordan: i think we could -- samm: we could look at a congressional hearing. the news broke the same day we have vice president pence's speech. we are in a technology conflict with china that is only getting deeper. this is just one piece of a deepening conflict we are seeing across multiple fronts with china. when we talk, about these avenues of attack, do they all go back to china? accomplishedd have this god hardware hack, why would they need to do these other things? jordan: the question. according to our sources, the same group responsible for the added chips and components to
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the motherboard was also responsible for the compromise of supermicro's customer software portal. if you can modify hardware at the factory, why would you need to do anything else? the short answer is, these attackers want every avenue they can get into sensitive facilities. if the implants, the hardware implants are discovered, a customer portal is a great way to impact a number of other users. the added chips are hard to put into computer servers so they want easier ways as well. these other vectors of attack accomplish that. emily: is anyone of these attacks worse than the other? i know we talked about a unicorn jumping over a rainbow with this hardware hack. is that the worst of it? jordan: the added chip we reported yesterday is the most effective gated and hardest to detect -- most sophisticated and hardest to detect.
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this idea of modifying the code anlegitimate chips, that is easier attack and it can accomplish the same thing in many ways. you can have a technical the bait about which is more permanent, but modifying -- technical debate about which is more permanent, but modifying existing hardware is equally as damaging. emily: what do you think these ramifications will be all the way back to china? samm: china is trying to sell 5g to start their own chip industry. no one is going to want to buy from china now. i think this shows sometimes beijing's security goals underlined their commercial ambitions. do you think it will impact the relationship between the u.s. and china which is already high tension? samm: i think this will accelerate what we are seeing as
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a decoupling between the industrial and technology relationship between our two countries. discussionady seeing the blocking chinese students in the u.s. we are looking at potential bands. -- bans. this will drive a wedge between the two countries. emily: jordan, you are continuing to pull the strings. what are we waiting for and what are you looking at? jordan: the report yesterday was the tip of the iceberg. once we started looking at tip, whichd got that i should note the first tip came from the obama in the ministration -- obama administration. tiponce we started looking at security, it opened up a whole new world to us. we need to look at what is found on hardware and some of these data centers. the big lesson is, you will not
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find the stuff unless you look. when you look, you'll find interesting things. emily: jordan robertson, thank you. and samm, thank you as well. you can enjoy the full story in this week's addition of bloomberg businessweek. bloomberg lp has been a supermicro customer but has found no evidence that bloomberg is affected by the issues in this article. did elon musk put his recent settlement with the sec at risk with his recent tweets? we will discuss. if you like bloomberg news, check us out on the radio. listen on the bloomberg app, bloomberg.com, and, in the u.s., sirius xm. this is bloomberg. ♪
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quelled investor fears earlier this week with its production numbers, the good news was short-lived. shares plunged after elon musk went into overtime with more than one dozen tweets targeting the sec and short-sellers. in one post he mocked the sec saying "just want to say that the sec is doing incredible work and the name change is on point." he then continued his tirade tweeting short-sellers are value destroyers and it should definitely be illegal. this comes less than a week after muska settled a lawsuit over his funding secured tweet. the deal will remove musk as chairman and implement controls over his communications and social media. here to talk more is max chafkin. that cannot last long. for these tweets compromise the
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settlement with the sec? max: it's possible because the deal is not final. as part of the deal, tesla is not supposed to say it disputes the general thrust an accusation. this feels like a borderline thing. musk could argue he is making a dad joke or something, but it definitely feels like a company that is not fully in control. one thing that is strange about the whole thing is that tesla's stock was doing well. it's not that the short-sellers were hammering it or anything, this just looks like another self-inflicted wound. emily: is this going to revive ability tobout his run the company? max: you have to think some people will bring it up. especially considering the nature of the tweets. andave a bunch of them there are typos and things like that. the problem here with tesla and
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for the sec is that tesla -- it is hard to imagine tesla existing without elon musk. a lot of the reason customers are buying the cars or fans of the company, has to do with his colorful -- this colorful guy. it is hard to say the sec has to step down as ceo because that would probably hurt the value of the stock and hurt investors. on the other hand, when you have a situation where somebody is not listening to the thrust of what board members or regulators are saying, it is hard to know where you go. emily: a federal judge still has to decide whether the penalties agreed to our fair. what do you imagine -- are fair. is happeningmagine with regulators knowing the swiftness they moved to open this investigation in the first place? max: an article my colleagues
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published earlier today said you can imagine the sec reading the right back to his lawyer saying we really mean it that you have to not call us the short seller enrichment commission. beyond that, i'm not sure. i guess you can imagine the sec bringing a lawsuit again and trying to get a deeper penalty, but who knows. hopefully, from the point of view of investors, elon musk will stay off of twitter. we saw some of the biggest bulls yesterday tweeting at him saying settle down and not to throw a wrench in the machine now. emily: recent history would show that would lead us to not expect that to happen. you have earnings coming up in a month. as you mentioned, production
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numbers look good and things were moving in the right direction. what does tesla had to do in the next few weeks to get from point a to point b? max: they have to just keep the production going. what exactly they did to give us production numbers -- to get those production numbers to look good. what they need to do is make those cars sustainably. the other important thing is now that the production stuff is figured out, they need to sell the cars and get them delivered. we have been seeing these reports about various delivery problems or issues with customer service. then, there is this long-term question of, will people who have expressed interest in buying this thing pony up. tesla throwing out incentives including free supercharging. there was a promise they would send a picture into space for tesla customers. there are trying all sorts of things to make sure demand is
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there has production ramps up. if they can do that, this looks like a successful car company and the company that has a car on the level of the biggest mass-market cars, at least in the u.s. emily: we will be watching the tweets. max chafkin, thank you so much for stopping by. coming up, lingerie shopping has gone digital. how a company is using digital to take down the torilla secret. "bloomberg technology" is livestreaming on twitter. check us out @technology, and be sure to follow our global news network, @tictoc, on twitter. this is bloomberg. ♪
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emily: yet another record operating product topping estimates. but, weakening demand for memory chips. stephen has more from hong kong. is the best, that way to describe samsung's memory which-- memory chip sales could ease concern of a potential drop-off inch of command long predicted as the super cycle tries supply forward. memory chips help samsung's profit rise to another quarter topping estimates to 17 and a -- yuan.ion oyuan 128 gigabit nam flash chips fell nearly 7% on waning demand and excess supply.
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memory chips account for the biggest portion of samsung's profit. there is also concern about smartphone demand. sales have been sluggish amid challenges from chinese rivals. investors have taken note. shares are down this year. one company in taiwan has sold all of the samsung shares they held citing a slowdown in the global economic cycle. the torilla's secret owner is the worst performer in the s&p 500. they are struggling to adapt to e-commerce and changing consumer tastes. its struggles have allowed a number of startups to steal market share in intimate apparel. one of the most successful is thirdlove. as part of a series looking at retail disruption, emma chandra spoke with the founder and ceo who says technology is at the heart of thirdlove's success.
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direct to consumer e-commerce brand that makes it very comfortable -- makes very comfortable bronson underwear. underwear.d disrupted third love what victoria's secret does and others? >> a few ways. one is focusing on product quality and a range of sizes. we have 70 sizes and the secret offers about 36. we have more than double including half sizes. shouldn'tf sizes, why braws? and we use real women in marketing instead of models. we also leverage data to help women find their fit online. >> you rely heavily on the machine learning and that helps you make business and product decisions. how does that work? >> to think about height get fit for a brawl, a woman might come
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into a room with a measuring tape. .e have digitized that have donellion women the fit finder. we have over 700 million data points. >> you have used in the data you had to find the products of you speak? >> we use the data for product development and design. we use it in marketing and personalization and in inventory management. across every aspect we're using data. >> it sounds i can tech company rather than an apparel company. >> we are a blend. we create beautiful products considered to be retail. >> you use to work at google. how has that informed what you do at thirdlove? >> at google, i learned to push
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the boundaries and think about new ways of solving problems and apply that to thirdlove. and i had also been at the apostle after business school. it is that blend coming together but maybe comfortable. companies inrunning the space either have a tech background or have a retail background and not the blend. >> and you need to blend it for the modern consumer? >> absolutely. can you tell us a little bit more about how profitable thirdlove is and your expectation of growth? >> we have been growing 300% year-over-year since 2012. we have 1.5 million customers and we continue to take on more and more market share. how much do you think of the industry can you penetrate? dependingilla secret,
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on the numbers you look at our somewhere between a third to 45% or 50% of the market. there is substantial amount of share to take. >> can you give us an idea of what percentage of the market you have? >> a few basis points. >> thirdlove is one of the fastest-growing companies in america. what is the next step for thirdlove? >> i'm having a great time impacting women's lives and making a difference in the world so we're focused on growing the business now. >> that is a nice answer. your investors once a little more specific than that, or they must be. >> our investors are patient. they know we are building a brand and they are focused on the same thing we are. emily: that was the thirdlove ceo.
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how will congress respond to the news of china's supply chain hack on the united states? we will ask a member of the house intelligence committee, next. that conversation is coming up. and later, spotify hit the public market this year and competitor, tencent music, is ramping up. we talked to an investor who backed both companies. this is bloomberg. ♪
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emily: this is bloomberg technology in san francisco. i'm emily chang. back to our top story. continued fallout over the bloomberg business-week investigation revealing the hackedto which china has u.s. tech companies like apple and amazon. omething that didn't seem to surprise the white house's top economic advisor. what he had to say earlier today on bloomberg television. >> i think it's a good thing to on guard because our chinese so-called friends have done a mischief in that area, not least of which in addition stealing of s and technology, cyber hacking. mily: now to get the view of
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someone in congress about this hack. congressman chris stewart utah's second district and a member of the committee.lligence he joins us from utah. representative stewart, thanks us, what is your report? thought on the rep. stewart: i can't comment whether it's actually true or not for a number of reasons. let's speak generally. this is truly, this is the holy grail of hacking. this isn't implementing software or implanting software and being able to gain access by that. did this in the manufacturing process which makes it much, much harder to check, nearly impossible to counter and it opens everyone of it's privacy issues, whether it's commerce or banking or worst of all, implications.ity this is a very serious concern and by the way, the fact we mean oh,d this doesn't good, man, we dodged a bullet. it's not like this is the only
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made.t that china has we have to, as you just said, we have to be constantly on guard constantly on the defensive this. looking to get more information from u.s. intelligence agencies, how you that, go about doing getting that information? rep. stewart: we can have conversations with them. it's not something that is new us. it's not like we woke up this morning, oh, my gosh, we never we should ut this, check into it. it's something we have been very diligent about and aggressive in trying to pursue this type of making sure we are in the right information. this administration has been much more proactive and in putting ourselves in a position where we can defend about this. makinguments i have been for a while, the previous administration was far too illing to suffer these hacks and not really have any retribution or any price to be
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paid. encouraged it and it made it too easy for our adversaries to poke and product and plant and see what we can do. have to be more aggressive. china should pay a price in doing this. the only , it's not thing that china is doing to is a ing us difficult to have positive relationship with them. look at the south china sea, any should f things that we be on guard with regarding china. emily: what do you believe is he price that china should pay for this? rep. stewart: a couple things. one thing it should be well they and advertised that are doing this. have moved rers who so much of their manufacturing to china for economic reasons ould then consider there are other concerns that we would have to weigh that against. up e it's not smart to open a new chip manufacturing facility in china. vietnam should do it in or maybe hopefully here in the united states. so i think that would be the
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first thing that i would hold accountable for is the economic impacts of it. there is more than that as well hich is why some of our negotiations regarding trade and sanctions is an important part of this conversation. emily: so what action do you believe the committee should take? rep. stewart: well, the first it, is to be aware of obviously, as he has said and i just said to you. not the first time we have this, to continue to dive into it as best we can to aware, e american people especially decisionmakers, business and government decisionmakers. heavens, one of the things i'm concerned about is that potentially this chip that hacked in a very, very those us way, that servers may find themselves as a contract to provide cloud pentagon or the for the c.i.a. we know if that hasn't been certainly a possibility. that's the kind of thing that the committee would be diving nto and just demanding to know the implications of that. emily: do you want to hear from the companies, do you want to
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from apple and amazon and super micro? ep. stewart: yeah, of course, we would. we can't understand this without talking to the manufacturing and alking to those who are distributing these products and we don't want to do it with a pointing finger. want to go with want to go with a hammer on their head and condemn them, especially before we really understand what happened. by the way, it's not just apple and and the of this particular server has been widely isseminated according to reports once again amazon. the distributor and something more than 30 manufacturers have this type of equipment. we can't understand the problem at least not in its entirety to the talking manufacturers and those on the commercial side, not just the government side, we really got both.k at emily: now, since we're in the midst of the mueller garks a lot f talk about how big a threat russia is. do you believe china is a bigger threat than russia? ep. stewart: it depends on what you mean by threat actually. i mean, when it comes to, if you
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backward in our 2016 election, our focus was clearly on russia and it should it needs on russia and to continue to be. i have argued for a couple years, we're turning a blind eye sometimes when we focus on only one side of the world and that's towards russia because china has proven they're not a trusted partner and they're not a trusted friend. if you were to ask me strategically looking at the our children n, and the challenges they're going to face, i think i could argue that china ncingly is the greatest threat we face in a very industrying sense. vice president mike pence made a speech yesterday about his concerns around china. quick listen to what he had to say. mobilized covert actors, front groups and the ganda actors to change perception of chinese policy. as a senior career member of our me lligence community told just this week, what the ussians are doing pales in
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comparison to what china is doing across this country. that far, ld you go ongressman, that it pales in comparison to what china is doing? rep. stewart: i think the vice president is right. the word would use "pale" or something, a little softer modifier than that, i don't know. what he said is exactly true. i mean we have incidences where hina is taking out advertisements in the middle of our country in the heartland hoping to affect public policy public perception. look at the centers, hundreds of hem, more than 500 of them around the united states that we know is used as a front for intelligence and for chinese manipulation of commerce and government. intimidate they their neighbors so that they don't take a pro u.s. stand. going., i could keep the list is long. there is no question that what the vice president has indicated there is absolutely true, which is why going back to what i said
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previously, strategically, i they're the greatest threat that we're going to have encounter.d i don't think we've had that conversation yet where we have convinced most americans that that is true. on the issue of the mueller investigation, i got to ask you, do you believe that conducting a is fair investigation and that the president should sit down with no strings attached? rep. stewart: you know, i have always supported the mueller investigation from the very beginning. i have always said as well, i hope he does it thoroughly, but possible. quickly as i think for the sake of these individuals who have been accused, that in fairness to them, they need to have their name cleared if they're innocent. for the rimarily benefit of the american people he does it quickly so we get these answers. support mr. mueller in his investigation and i want it to forward. emily: representative chris stewart from utah, thanks for you.ing by, good to have at the center of the chinese hardware hack is a san
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jose-based company super microcomputers. it's one of the world's biggest server mother boards, but what more do we know micro?uper tom giles is here and this truly appears to be the mother of all all true ndeed it is as we have found, what do we super micro, tell us more about this company. tom: they are as you said, one makers of mother boards, a crucial component to the servers that they also and these end up in data centers around the world. there has been so much demand, as so much more digitally, is sent more information scored, more computing down in the cloud. these companies around the world like apple and amazon have had really beef up their data centers which includes buying thousands and thousands of centers. one of the providers is super micro. are : and their servers
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manufactured in china? tom: that's right, that's right. ometimes in their own factories, sometimes by subcontractors. mily: tell me how super icrofits into the supply chain infiltration. tom: investigators have told us that -- sorry, investigators have told us that a unit of the army, very beration specialized unit worked on creating this. hey would basically find their way to work with subcontractors orking for super micro, find a way to get the chips, either through threats, through intimidation. found different ways to get the chips on to super icromother boards that then found their way across the ocean centers of a multiple companies. and the intent was to gain that's o information traveling through the networks, hether it's i.p., whether it's
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government secrets. remember, some of their clients work for the government, for example. microstatement says while we would cooperate with any investigation, any government investigation and there is has reported still an open u.s. government investigation into this, we are of any investigation regarding this contract nor have any in thisacted by regard. e have not heard of anyone for this s a supplier issue and the shares are not doing well, but what do we make of this denial? tom: well, we do know, for example, a couple of things. pple dropping super microas a provider, that is something that has been in the public domain for more than a year. not anything new that we've reported. we have new insight into it we spoke to the people to. so concerns about supermicro's emerged. that has they disclosed a couple of years go that they lost a couple of
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very high profile customers. one of them was later found to apple. again, that's been in the public domain. customers asking questions about reliability of their product. hey also had high level departures in recent months. they've had questions about evenue recognition that resulted in them being d- listed in august.sdaq just there have been these questions esolving their accounting, questions around personnel moves, questions around the reliability of their products, raised when apple dropped and another customer dropped this s a provider, so stuff has been at a time when their sales have been rising, for their een demand product, there has been concerned about them as a share price heir had been declining even before our story went out. emily: a lot going on behind the scenes. i know we're continuing to pull the string here. tom giles, our executive editor
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thanks so g tech, much. we should note that bloomberg l.p. has been a supermicrocustomer but found no evidence that bloomberg has been affected by the hardware issues article. this coming up, a continued surge of chinese ings by company. tencent music is filing for an o. we'll talk with an along r in the company with spotify. this is bloomberg.
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a nd from soft bank and set goal to sequence 1 million cancer patients in the next five years. bloomberg's i.p.o. reporter alex caught up with the c.e.o. and that ambitious plan is going. going well. we have sequenced tens of thousands of patients and have a behind pportunities those. we're seeing tail winds from medicare reimbursement and lung cancer. we're seeing a lot of private payers covering the test and we're seeing a lot of progress terms of using our technology latform and applying it to cancer survivors for recurrence detection and using that data to pply for early detection for the rest of us. finally, we're seeing opportunities internationally as a joint ave set up venture with soft bank to really commercialization of our products in asia and the middle east and we're very xcited about the opportunities we're seeing there.
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>> so as you said, you're in the late full force in the stage cancer patient phase. you mentioned early detection. hat seems kind of like the end goal for a lot of companies like yours to be able to have a blood all that can screen for cancers in an early detection scenario. is that kind of what you all are here? is that kind of the golden goose end for guardant? >> it's had good progress, but mostly in the late stage disease and so it really is often too little too late. cane can develop tests that bring that paradigm to the arliest disease state, around where early detection is most appropriate, we believe we can mortality ly change curves in cancer. we have had a disciplined starting rom day one by studying what late stage cancer looks like in the blood, levering, that data to then solve the problem
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what early stage cancer looks cancer survivors and then going eventually to early etection in a systematic approach. emily: and that early detection and systematic approach, you're there only company out who is trying to really crack the code on this one. employer kind of reated a competitor to get to that end goal. across the market, how soon do before we see either guardant or another out with a blood test for all cancers? we're not point disclosing timelines with respect to early detection you am, but i can tell we're making radwanska progress toward that goal. later this year, we'll be series of he first tests for the cancer survivor with for use biopharmacompanies. we have released some data around our early detection looks very
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promising. i think we're quickly approaching that goal and i would say stay tuned in terms of coming out of that program. emily: speaking with i.p.o.s week, tencent music in listings by chinese companies. size as its offering $1 billion in an s.e.c. filing. it's a place holder and may change. on the filing, we're oined by mitchell green, lead edge is an investor in tencent music. itchell, tencent is making money on only a sliver of those users. theoptimistic are you about ability to turn this into a sustainable and profit making business? mitchell: well, first thanks so much for having me on. not forget it actually is already very profitable. north operating margins
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of 20% and tencent music, i'll refer to it, is eally a platform just like tencent is that is leveraging these 800 million users that has.e. i think they're going to monetize them in many ways, subscriptions, social entertainment, whether it's advertising, i think they're just starting to crack code and it's around 3.5% of users right now pay and i think to be multiples higher than that in years to come. you look at a company like 40% of it's north of users pay. mily: you're an investor in both tencent music and spotify. potify is an investors in tencent music. they compete and increasing i will competing especially in southeast asia. that competition play out? itchell: we don't actually respectively disagree with you, i don't really see spotify and competing. t.m.e. is really focused on the
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dominates,t where it frankly. obviously in the u.s., spotify competition with amazon and apple. china, they're it. china, they're it. tencent music, if you want to olympic to music online, they own all of the major music apps it. emily: what about southeast asia? you don't believe that they will increasingly potentially compete there? itchell: maybe potentially very long term. look, our thesis, we think of and spotify as collaborators, not as competitors at all. actually think the two of them as a combined entity can be a powerful force against the music labels. i think you'll see them working why together, which is there is the equity interest. to monetize and build an enormous business is really focused on the chinese market. the users.
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emily: ok. the music is, of course, main competitor to spotify, the more concerning competitor to spotify. pandora was just bought by sirius/x.m.. game at change the all? mitchell: not at all. irrelevant.ora was you poll 100 people on the and ask how they listen to music, under the age of 30. streaming. andora is old school radio, they are going to benefit hugely decade.t over the emily: apple isn't irrelevant, would agree.e, you how do tencent music and spotify that?up to mitchell: tencent music and apple don't compete at all. in terms of spotify and that spotify -- i believe in the u.s. that
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superior s a far product to apple and i think that's how they've gotten to point so far. obviously apple is a very, very an e company that has enormous amount of resources a lot of n spend, but our initial diligence on spotify, we started talking to a of artists and things like that and people in the music industry. to us that ry clear potify is more desired by the artists. one thing that we haven't talked tools.et is the artist's so spotify and company like tencent music that specializes music versus apple that does a lot of other things, are building these unbelievable allow the artists to get very granular data on the listening to the music. emily: mitchell green, thanks joining us.
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emily: saudi arabia is upping its stake in the vision fund. the middle eastern nation is billion to the fund bringing its total investment in $90 billion. this comes days after the two $200 solar their venture was on hold. the benchmark asian tech index it a two-month low in the report that beijing hacked the built by sing a chip spies.
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david: you produced some of the most famous movies in american history. barry: first we failed. in order to figure stuff out, you are going to make a mess. did decide to u leave? arry: i have certainly been successful. but, none of this is mine. david: how did you gravitate towards the internet? barry: it was interactive and it intrigued me. david: is that how it happened? barry: i know it sounds like cracker, but that's what happened. then they said i was crazy. >> would you fix your tie, please? david: well, people wouldnâ ™t
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