emily: i'm emily chang san francisco. this is "bloomberg technology." fresh evidence and the china hiking scoop. hardware discovered on the servers at a major u.s. telecom company. . google's play to take on apple's on and -- apple and amazon. a smart speaker with the screen. is it enough to send us. alexa packing? -- bulls are back in tesla

send it syria and alexa packing? the bulls are back in tesla. first, to the top story, new evidence revealing a major u.s. telecommunications company is the latest caught up in the computer hack revealed by bloomberg businessweek. the company discover the hardware in its network and removed it since august. i want to bling in tom giles. what is so significant about this new reporting? it shows the supply chain remains under threat in the chinese have ways of getting at the components that end up in our data centers. researchers,nce, working on behalf of this , found aompany slightly different type of manipulation, but hardware was manipulated. hardware that originated in china and made its way into the u.s. supply chain. it had been manipulated at its

origin in china and was found out and has been removed. indicateses is it that parts of the supply chain remain vulnerable. emily: you have a researcher that has come forward, named in the story. tom: he is putting his reputation on the lined and talked about what they found, what happened and how they reached the conclusions they came to. we've run them by other people run the documents by people who understand how this works and they indicated his approach makes sense. inly: what was different terms of how this hardware was compromised from the previous report? tom: previously, this has to do with ethernet connection. this is what we used to connect communication networks. that is different in this case.

similar is that the supply chain originated in china and has to do with hardware. and supermicro is once again the company at the heart. researcher said supermicro is a victim and they are not the only one that is used as a conduit. we are pursuing all of those angles. supermicro continues to deny even the latest story saying the security of our customers and integrity of our products are core to the business and company values. we take care to secure the products and supply chain security is an important topic of destruction -- topic of discussion. you found apple and amazon denying the original story, usn u.k. government officials saying there is no reason to doubt the company's denial. tom: the companies have talked about their involvement and they

said we did not discover these chips in our networks. we have had to wait at against what we been told by a multitude of sources. emily: 17 unnamed sources and now an 18th named. apple have stuck to their denials and we take them very seriously. out and said it is possible that they do not have oversight over those agencies that are involved in the investigation we talked about. emily: why might the telecom industry be targeted and what could the consequences be? tom: [laughter] emily: it is the telecommunications industry. tom: these are the networks over all of our communications are. our he knows, phone calls, are traveling here. it would seem to be a logical

target for someone who wants to orerstand communications wanted to eavesdrop on ip. we are not clear exactly what the intent was. we're less clear than before. clear in this instance what the motivation would be. it is the telecommunications network so it is pretty central to all of the communications that are traveling over our networks. emily: i know you and your team will continue to report the story. we are staying tuned for any developments. tom, thanks so much. been arg lp has supermicro customer but we have had no evidence to suggest we have been affected by the issues in the article. a new report from crowd strike says china poses the newest threat.

i spoke to crowd strike chief technology officer and asked him about this story. >> the big headline is that china is back. when you look at the last couple inyears, we have saw decline intrusion activity against the commercial sector in 2016 right after the administration from obama struck the president that both countries would stop doing industrial espionage against each other. the chinese stuck to that agreement for the time, but then, in the last year and a half, we've seen pick up in activity and we are seeing a lot of intrusion in all sectors of the economy whether it is biotech, pharmaceutical, professional services, hospitality, insurance, all types of sectors where the chinese are breaking in and stealing intellectual property. now as opposed to before, it is

mostly the state security. is onvilian intelligence most of this activity versus the people liberation army. the military that was doing a lot of that activity before 2015. emily: bloomberg has published an investigation that the chinese implanted spy chips on the motherboards of supermicro servers which ended up at 30 u.s. companies and the u.k. and u.s. governments. what is your reaction to this report? we also have a new story out today where similar situation was found that the u.s. telecom. dmitri: supply chain has always been a concern and we've seen china, russia, and others leveraging the software supply chain in their attacks where they cover my software and leverage that to introduce more cisco into environments. we have not seen hardware-based attacks like the stories are

talked about. so someone physical can physically look at it and verify whether there is an implant on it or not. there's a lot more to learn as the stories unfold. emily: i should mention the companies involved have denied this. u.k. and u.s. government officials have said there is no reason to doubt the denials, but that said, is this within the scope of something the chinese are capable of? dmitri: it is certainly possible. this seems like a very expensive and difficult effort to go through to achieve that objective knowing they are able to do this through the compromise of software supply chains or rough intrusions into companies. realm of out of the possibilities, but there are a lot of questions to be answered. emily: what are you most concerned about? you talk about the relationship between nationstates, government

arms, and their criminal counterparts within those nationstates and your continuing to see a blurring of these lines. dmitri: that is right. we see criminal groups adopting nationstate techniques, tools, and tradecraft in order to break into organizations. upnationstates are coming with lots of the innovation, a lot of the new exploits and discover new vulnerabilities, very quickly, that dissipate into the criminal underground and the criminals are using those techniques to break into companies. the biggest threat to companies is destructive attacks like the one we had seen from north korea and russia respectively in the last year. those types of attacks can take down organizations for weeks at a time. we worked on a number of cases around those attacks last year and companies have suffered tens of millions of dollars in damages because of it. we have a midterm

election coming up. house -- how worried are you? dmitri: election systems remain vulnerable. canada in particular is not ok thing as much on it should be on their campaigns given the importance of the campaigns. we are not seeing any major interference efforts in this election cycle in the midterms. it is always a concern. emily: what is the defense? what is the best defense at this point? dmitri: the white house has come out with a cyber strategy that outlines the fact that deterrence need to be a big focus. fromed to deter countries conducting these activities in the first place. we need to find pressure points against those nationstates.

it'll have to be cyber. they can be economic, diplomatic. we are leveraging the full toolkit of the u.s. power along with our allies to pressure the states to stop orchestrating these attacks. emily: you also document targeting of the biotech industry. how successful have those attacks been and what are the consequences? dmitri: this has been a big focus for china in the last year and a half. we see a lot of intrusions into various startups. ,his is all part of the chinese made in china 2025 plan their working towards where they want to see china being a major competitor on the global stage. another sectors, they want to see domestic industry thrive. they are doing that by stealing intellectual property to ,hortcut the time for r&d understand what mistakes not to make, and where to place the bets. emily: it is clear china has ambitions and they are a threat.

do you think the response from u.s. companies and u.s. and u.k. government should be to move the supply chain or divert some of these products being made in china to other countries? question ife is no you're operating in china, if you're developing in china, you absolutely have to worry about the compromise of the supply chain. you have to worry about intrusions from chinese competitors, sometimes even chinese partners into your network. they are stealing your intellectual property. there needs to be more done to confront the chinese government on these issues. the trump administration has done that. they outlined all the things the chinese are doing to steal intellectual property. that is something many's to continued -- be a continued

focus -- that is something that needs to continue to be a focus. emily: in terms of funding their efforts, how successful have hackers been in targeting cryptocurrency and stealing money, essentially? dmitri: that was another big focus for another group -- other groups. also north korea. they have used hacking to steal funds to fund their regimes. also, cryptocurrency exchanges. they have stole hundreds of millions of dollars worth of bitcoins and other cryptocurrencies that they have tried to monetize. that continues to be a focus for them and continues to be a focus for criminal groups as well. typically, when you look at the new startups in the market, they do not have a lot of security, they are typically very small,

and it is not that hard to break in, still all of the tokens, and the unfortunate thing is that there is no central authority that can give you your money back once it happens. emily: crowdstrike ceo and cofounder joining us from mountain view california. google is chasing after apple and amazon with a suite of new devices. can they win the hardware race? we review next. and, 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. ♪

emily: google is chasing its biggest tech rivals with the new suite of the vices. they showed off new pixel phones and a new home of speaker with a screen. can the new devices gain ground on apple and amazon? joining us to discuss is google's vice president at the launch event in new york. mario, thank you for joining us. going all-out on this hardware and software strategy, much more like apple. why is this a better strategy than the prior one of partnering with other companies? mario: our strategy is to bring great hardware, but to take advantage of the years of experience in ai and software to deliver an experience more official. we are trying to do useful things for our consumers. emily: what's the

differentiation when it comes to the phone of the pixel from the iphone xs? mention our ai capabilities are into our third imagingh generation of to generate the best possible photos out of a smart phone, that won't stop there -- but won't stop there. our pictures are being used for many things. we are also building on to what people have not been able to do. sometimes you might take a photo where somebody's eyes are closed and the ai suggests other shots that you may have meant to capture when you pressed the shutter button. or night photos where the light is not perfect. emily: in smart speakers, amazon

was first to market and are leading the market now, but google is hot on its tail. do you think the smartphone market is a winner take all market or will multiple devices be embraced in one home? here i would be speaking a little out of school for one of my colleagues because i'm not responsible for the smartphone. we can tell you we are bringing the google efficient experience not to just devices in the home, but to pixel through features like call screens that allow for you entirely on the device to avoid telemarketer calls or to be able to understand whether a call coming in from a loved one is something that you should take up immediately or you should call them back later. emily: the phones have a new security chip custom-designed by google called titanm.

there are renewed concerns about privacy. google plus was revealed there was a bug meaning data of hundreds of thousands of users could have been compromised and trust in tech companies seems to be at an all-time low when it comes to privacy. why should consumers believe you that their data is protected? mario: like we said today, we built-in the titanm security chip because security is a critical part for our phones and other products we're talked about today. broadly in terms of our experience to build on ,hat security to deliver through our ai, an experience that is differentiated to consumers. emily: what do you have to say to consumers to make them more comfortable using our products? what hasy given

happened over the last couple of years and increasing awareness on privacy and security? what we tell consumers is that we really are applying artificial intelligence that is artificially, but to do useful things for consumers. we want to make sure we are using your information to provide things which are useful to you and you only. we are applying security and to our phones and into the hardware of the phones so we now have control of our phones and other products. those are some of the things we're doing. emily: we don't see much virtual reality of these products so i know this is something google has been working on. how will virtual reality and augmented reality fit in to this product suite? mario: we are really excited today to announce something cold ground where we take augmented reality to another level. we're building what we used to stickers and they are now

in their. we have a partnership with to mix these characters with yourself or loved ones in both cameras on front and rear facing. is a part oflity making our phones not just useful but fun. you so much, thank for stopping by in the middle of your event. glad to have you join us. in the meantime, google decided not to compete for a pentagon cloud computing contract that could be worth up to $10 billion. the company said the project may conflict with corporate values. there have been extensive pro-texts from google employees -- protests from google employees. microsoft will bolster the company's position in the pentagon winner take all competition for a multibillion-dollar cloud

computing deal. "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. ♪

emily: proceedings been's parent -- mercedes-benz's parent working with dime alert. the project would take on their industry leader in china. tech, they arena now in uncharted territory. tencent has lost more market value than any other company in the world is here. has been in a downtrend

for a record 259 days. shares have been hit by profit warning and concerns over tech valuations. in a race between china and the u.s. for 5g, verizon's new ceo is shaking up his management team. he iserg learned personally interviewing the top 300 managers to identify who will build be tech generation network. they described the process as re-interviewing for their jobs. coming up, google is taking on apple and amazon with a product launch. but, google shut down google plus as a result of a data breach. plus, we will take a look at what we have tesla shares soaring -- what has tesla shares soaring. this is bloomberg. ♪

comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast.

emily: this is "bloomberg technology." andle is taking on amazon apple with the slate of new products including two new phones with larger screens, tablet with a detachable keyboard and a new home hub with the screen. but with privacy scandals, will consumers be willing to put their skepticism aside? >> it's a great question. consumers up to this point have continued to love google all ofs, gmail, search, the above. with the new phone, it has been a challenge for google to break into that territory dominated by

apple and the iphone and they have a couple of new phones out today. the design is pretty straightforward and what we are used to seeing from google. if you let a call go to voicemail, it will transcribe that voicemail in real time so you can see if it's actually something important and quickly pick up the call halfway through the voicemail. but like you said, the timing is awkward, because yesterday there was a big story that they did find a bug in the google plus social network around march and decided that, because from their perspective know it had been harmed by it, that they didn't need to talk about it, and of course, now they do, and the timing isn't great for that. what does this phone have on the iphone and other competitors, and could it just be a slow starter? gerrit: the pitch from google has always been that if you are

a major google calendar user, google docs and google drive, using their phone will be more seamless, if you're interacting with a lot of other people who are also using google products. but it seems a lot of consumers still want that iphone. they're still that cool factor and attraction to the premium iphone model. focusedportion that was on the phone, i would say it about 80% of that portion of focused on the camera. they even had pictures taken with the new iphone lined up next to pictures from this phone to sort of show why their camera with so much better. maybe for those people who want to have that experience, it will just be another reason to pick up the new phone. much for yourso reporting. tesla shares soared tuesday after macquarie said the company

is on track to reach profitability. is it time to talk about a tesla turnaround? macquarie is initiating coverage here at a bite. what is their argument that tesla can hit profitability and that this is indeed a good buy right now? they think it could be profitable in the second half of the year and they feel like tesla still has a big opportunity in the energy storage market, which is part of the business that we rarely get to talk about, a tesla does sell batteries to utilities and they feel like that's a big wrote market. emily: do you share their optimism? >> yes, i do. must got that yunnan was an incredible positive. the second is the third quarter

,eliveries of about 81,000 cars also very promising. other than his comment about the and he does love to kick the behind, but i think that a lot of negative concerns have been lifted from the start. the judge overseeing the settlement still has to decide whether, indeed, it will be ok, beehive poking the probably doesn't earn him a lot of goodwill. >> it will be interesting to see what the judge does. they have to turn in the paperwork by thursday and then she has to sign off on it, but she doesn't have to sign off on it on thursday. it's still a procedural hurdle that everyone has to go over.

the shares were rattled, so you had the shares fall on that. now they are up again on this positive coverage by the new analyst. auto threelatest numbers were good. we did not get a forecast for the quarter, however. do you have a concern that tesla will not be able to sustain the reductiondel three that it has been able to demonstrate over the last room -- last few weeks, throwing everything at the wall? get ank the pace will little better. the demand is still there. the car is incredible. the have an incredible fan base. i think that is the gradually increase production, the company will continue to do better. emily: talk about what we are expecting with earnings coming up, what we know and what we don't know about model through production. >> they haven't given a forecast

on how many cars they expect to make in the fourth quarter, which is odd. $33,000l make a production which is not in production yet. the whole premise of the model three is that it would be mass-market and started $35,000. that car is not in production, they are just making the higher end models. how many people who are waiting for the model three one that lower-priced version? emily: sit to send to talk about a tesla turnaround? the shares have been suffering but do you think this is the beginning of a turn for the better, or is it too soon to tell? >> i think it is somewhat a turn for the better. e line will always be the way he is, so i don't think trying to change him would be a good use of energy, but the car continues to sell, the demand pipeline continues to increase. the base model three does start

it $35,000, but the ones they're producing have a number of features and that usually the case even with cars that started $35,000, when you add a number of features that you want, they will probably sell for around $45,000 depending on the features. i think the car represents a lot of value for the performance and the gas savings is also tremendous. i believe some sort of tax credit will be in existence for ine time because it is almost everybody's best interest that there are more electric cars on the road. pollution, the carbon footprint, and dependence on foreign oil. they have a lot of good tailwinds. emily: meanwhile the settlement with the sec requires that he step aside as chairman. they will be looking for a new

chairman. what is the status of that? dana: we don't know if they've hired a search firm, but they are on a deadline. he has to step down as chairman within 45 days and they need to hire independent new directors within 90 days. a lot of names have been bandied about that we don't have any insight into how serious those candidates are. emily: are there any names you've heard that you think are realistic? >> i think a lot of people would be excited at the opportunity to join tesla. energy car company, and company, the battery storage opportunities are big and also the solar panels. there is more to come. they had the semi-truck, the crossover suv coming, they have that roadster. there is a lot in the pipeline for the company and i think a lot of people would not mind being part of it. emily: several names have been bandied about, former vice

president al gore, but who knows if it's wishful thinking or realistic choices. you, always great to have hall.ll as dana scathing new research report says that the parent of snapchat is quickly running out of money. they may needid to raise capital by the middle of next year. he predicts the company will lose more than $1.5 billion in 2019 while it rebuilt its user base. what about music? the first music festival powered by cryptocurrency is going on this month in san francisco. we will catch up with the festival's, next. this is bloomberg ♪. ♪

emily: jennifer metrics warned about pointing to a meltdown. 2017s have fallen in late to less than $670 million last month. bitcoin study transaction volumes have fallen to 230,000 and its concerns like this that will sure to be dominating blockchain week in san francisco this week which brings consumers together to push the boundaries of blockchain innovation.

one company is using the music scene to try to push it does to the mainstream. the first decentralized music festival ecosystem is been created to allow attendees to use -- choose their own lineup. explain exactly how this works. we are still building a lot of the technology right now so it has been a long process. the regulatory environment has prevented us from doing everything we want to do, so this year we are basically just issuing reports to fans that it's in the event. get skymiles to get free merchandise and free atoms that the festival. in the long-term we hope the participants will be able have their governments over the festival itself, like picking the artist that play and be able to sell their own products on

site. emily: how is blockchain part of it? the in: rebuilding on network, but ultimately the entire network is open source. it allows for fans to trade in exchange tokens on the network. emily: how big do you think the audience is for this? justin: the event next weekend is almost sold out. we will have 8500 people. a lot of people are just trying to learn about what this is and how it works. emily: you say the idea is to evolve. but once the attendees trade in their tokens, then the festival is over. ? justin: we will try to add which isto the cap basically a wallet that holds the currency and all these

outings that you can get that our digital assets. emily: give me a specific example. i buy one of these tokens, i would like to see beyoncé. how do i make that happen? justin: that's a great question. as the ecosystem grows, we hope we can see value in fans selecting those apps. ideally, value improves through the entire ecosystem and we will be able to hire bigger acts like that. we've had pretty significant acts playing the events and essentially invited goes will a token like a digital ticket stub that gives you 25% you will getand digital currency that you can spend to get free merchandise. emily: so what is the value to be on-site? beyonce?--

justin: i think that's a reasonable future goal. emily: what else would be possible in the music world powered by blockchain? justin: there are so many applications. we chose to work on the line side but i think there are tons of streaming applications, one of the projects i'm advising gives artists more direct power to accrue royalties from their fans directly. emily: is there a limit on the total token supply? one billion is the limit. there might be multiple tokens that represent different things. emily: we will watch how that evolves. tell me when you have the on say e. beyonc soundcloud is rolling out a new

program. will it be enough? this is bloomberg. ♪

emily: "words with friends" and

farmville could be getting a new owner. zynga has attracted interest from other developers. no formal talks have taken place yet, but the san francisco-based company has reportedly received preliminary approaches. zynga has a market value of $3.3 a millionth over players. it's always been hard for musicians to make a living and technology has made it even more difficult. even with a million streams, don't bring in much more than $10,000. soundcloud's hoping to make a dent in that trend. thanks for joining us. you are rolling out a new monetization program today. what is it mean for creators and for listeners? >> will now be rolling out the ability to monetize directly on soundcloud. anyone with a soundcloud

unlimited subscription, meaning -- largest group of soundcloud has always been defined by offering traders and expensive set of tools to trade with their world however they wish. we are excited to roll out the ability to make money directly on the platform to more creators than ever. emily: how much revenue do top ?erformers make the most important thing is offering the creator a direct line to listeners. a true independent creator, being ever to have that direct relationship with the listener and whether they choose to have a manager or a label is up to them. for an independent creator, this means more money in their pocket

at the end of the day on a revenue share basis. we also have many creators who have gone far into their career and decided to remain independent. we also have content from major-label talent. soundcloud really runs the full spectrum from the true independent all the way to the global superstar, and we want to make those tools available to as many as possible. a partner on ad sales. how does that accelerate soundcloud's listeners given that pandora is declining? kerry: we are one of the largest bases of listening anywhere in the world. for us to bevel to tap that world-class sales team of pandora to help us monetize our u.s. inventory just means much more revenue coming into our platform and her service from the u.s. market, which in turn means more revenue for creators. so it is a fantastic opportunity for us to just make much more

revenue with the existing inventory that we already have on soundcloud. emily: the soundcloud have more or less users than last year? disclose thee not numbers, however, the service is still growing nicely. we are really excited with the growth we have seen, both on the user side as well as the revenue side. it has been a really solid year for us and we are extremely excited about the future. we remain one of the top streaming apps in almost every market worldwide, certainly the largest and most developed. the reason for that is it is a very different type of service. soundcloud is built from the creator out. we have content from over 20 million creators. love discoveryho and are excited about discovering something first, soundcloud offers a very different experience, which is

one reason we continue to grow. we've seen the advertising on google and facebook, but audio has been slow to catch up. do you think that kind of growth can be replicated in audio, and if so, how? audio is such an extremely interesting category that is just starting to emerge, across the board. run the advertising interest side, one reason we are so excited to partner with andorra -- with pandora, and other trends from the consumer side, where with expansion and penetration of music, and mobile and the connected home and car, on top of music you can add non-music streaming. you have podcasting, information services, voice control. a number of trends from the consumer side as well as the commercial side, i think it makes in extreme case for audio

and we are excited about it for music as well as the audio content hosted on the platform. emily: there have been reports of a podcast sort of plateau. is this still a big area of growth for you and a way to expand margins? kerry: i do. i think the next wave of podcasting is here today for all the reasons i mentioned, terms of consumer interest in accessing not only music but non-music audio for all the other outlets. i think it's going to come in chunks. but people invest in technology and they feel it has plateaued, but you have to look further into the future. consumerely think the demand is there. there are lots of great technical challenges to be unlocked and a great commercial future as off-line traditional radio really goes digital.

emily: we will be watching or listening. thank you so much for stopping by. that does it for this edition of "bloomberg technology." i'm emily chang from san francisco. tomorrow i will be coming from l.a. this is bloomberg. ♪

>> welcome to "bloomberg daybreak: australia." sophie: we are counting down to asia's major market openings. haidi: these are the top stories recovering over the next hour. treasury yields retreating from a seven-year peak. tencent is one to watch in hong kong