>> i'm taylor riggs in new york in for emily chang. this is "bloomberg technology." who will outperform and 2019? gene munster says apple will beat out it's tears and next year. plus, will be tech fizzle out -- bittech fizzle out in 2019?

ech fizzle out in 2019? we look back to some of the biggest tech deals of 2018. highlights from our interviews with the microsoft ceo and more. first, to the top stories. one veteran analyst is telling us let's move over in the new year. gene munster is predicting apple will be the best-performing faang stocks in 2019. here's a reminder on where apple stands now with a few days left to go in 2018. they are the second worst performer in a group of large-cap tech stocks. it spent a year seeing the iphone maker richard trillion dollar market cap and lose its crown as the world's most valuable company to microsoft. what makes munster so optimistic? jean joins us now. walk me through your general thesis. as we said, the second worst performer of the faang stocks. gene: we think investors will think about apple as a service. that's the whole company as a service. as that takes root, that should

yield a higher multiple. i want to talk briefly, when we think about apple as a service, what that means. we're not talking about its services segment, we are talking about their entire business, hardware included, operating with more predictability, like a subscription model. we have seen evidence of that over the past couple years. growth has been down and up a couple percent, what the notion investors can sleep well at night knowing this is a predictable business has not set in. specifically, what we think will happen in 2019 is this new reporting methodology, where they no longer give iphone units forcing investors to think about the business more as a services business in particular on revenue and earnings growth. one other quick thing is that the other faang stocks are going to be seeing headwinds. particularly google and

facebook, in regard to regulation. have anyoes not breakout events. the combination of those make us believe apple will be the best performer of the faang stocks. taylor: you talk about being a service and more of a subscription model which will give you topline and bottom-line earnings growth. what does it do for margins? at an income statement, a lot of this will have to do with boosting margins. is that a segment that can help trickle down into better income statements? gene: the services segment has a much higher margin than the hardware. about twice as high. consider this a 70% gross margin business. they will be breaking that out for the first time, so we will get insight around that. our belief in this as the best performer is really stability on the overall margins. you will see declining hardware margins as they try to feather around with what the right pricing is.

separately, some increase on the margins of the services. the nets will probably net stable margins in 2019. taylor: how does a company like apple move away and diversify the revenue away from iphones? thise talked about so far year is iphone and unit sales, and average price per phone. how did they gather revenue from other sources to create stability? gene: from investor standpoint, it is painful. that is why we have seen this first knee-jerk reaction. for about company standpoint, how do they diversify their business? i think it is doing more programs. they have the iphone upgrade program which is buying an iphone subscription. it would make sense that apple offers other products like the .ac or the watch that's one thing they can do it. separately, continued to build the app store. yielded thestem has most favorable growth of the services segment. i think the combination of those

two, shifting investors, hold pretty effective to how they buy tech to more of a holistic. taylor: i want to switch to another stock you are looking at which is tesla. it has been a wild year and there have been talks are going private with tweets. what is your thesis of tesla for 2019? gene: we are big believers. it could have a great year in 2019. fort, we are bracing difficult things elon musk will do on filter, but one importantly, we think tesla will show in 2019 that despite competition, 52 major car companies coming out of the like models next year, we don't think that will change their market share in the. evs.ket share it should yield continued growth to get the

company adventure cash footing which would be better for the stock. taylor: talk to me about free cash flow and turning a profit, because elon musk, positive free cash flow was a big goal. not only in the fourth quarter, but keep it sustainable into 2019. how sustainable is it in the years to come? gene: sustainable is a critical word. they will likely show profit. investors will likely debate whether it is sustainable. if you think about the whole year, it will be sustainable, but there may be a quarter where dips below in 2019, that the trajectory is positive because they are picking up manufacturing efficiencies and units continue to grow as they open up model three to the rest of the world. taylor: i want to touch on model three, because too often when the reports come out a month, our eyes are glued. glued on their production capacity. is that sustainable?

can we see a consistent 5000 model through the week when it comes to production and deliveries? gene: we are shifting away from the hyper analysis on production. that theyestablished can produce. the bigger question is the tax questions in 2019. electric cars sosa p or to the gas -- so superior to the gas. i think their productivity will yield demand that they need to continue this. we continue to be big believers. they may even surprise us with a preview of model y sometime in 2019. taylor: some pretty bold stock calls from gene munster of loup ventures. thank you for joining us. yearg up, after a field with privacy scandals, one short seller is betting big on facebook. our conversation with him, next. 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. ♪

is the 2019 s&p stock of the year. andrew wrote "movies have been written in books have been -- movie seven made and books have been written on facebook. investors become overly

concerned about the short-term noise of privacy and propaganda. they have forgotten to look at the earnings power and potential of the most advanced advertising tool with global reach and messaging, networking, and the future of shopping. torew rebbe -- web spoke bloomberg earlier. >> 2018 became facebook is evil. that has compressed the multiple of facebook. and it reflected in the stock price, despite the fact that usage as high. growth is still there around 23% for next year. that being said, when i see evil and facebook's price being ifaper than altria, i wonder they have the narrative wrong. it's like pouring gasoline on

the fire. how do you handle that? >> regulatory is part of the going up -- growing up. it's not going to impair its core. people use the product. their amount of active users is beyond. there is growth process. of course that will be regulation and privacy concerns, but if someone has available ad space to spend, i think there is lots more opportunity and facebook. -- it's allbout about changing the narrative. there has been one scandal after the next, but by no means is this an inherently evil company. its trading cheaper for the s&p then it has ever traded. >> i haven't heard analysts negative on facebook being evil.

they just talk about margin pressure. neither one slashed their price targeting. ,he continued margin pressure glowing rubble scrutiny, that is a real fundamental thing. >> if you wanted to go bottom line, you can look at the spending of facebook. they bought a tremendous amount of this year, which could bring earnings -- future years. that alone could be frontloading for better earnings in future years. taylor: that was andrew left. remains on track to give its worst performance in 2018. will investor sentiment shift in the new year and what is facebook's game plan to rebound? sarah frier joins us from san francisco. 24% this year,l

but then you have a company coming out positive on the stock. what are some of the positives for facebook as we head into 2019? >> citroen makes a good point that there is more to facebook than facebook itself. there are opportunities in messaging, instagram, the at has never been greater. i will agree with alex on the point that there are fundamental issues beyond the consideration of facebook as evil. the company said its growth will slow. they said the spending will go up and margins will be pressured. i think there are fundamental falling.he stock is starting in july when they made the announcement for the first time, it was not the privacy scandals or the congressional testimony. those things didn't hit the stock for a long period of time. it was mostly the company's own commentary about how its future will be more difficult than it

passed. taylor: you bring up the threat of regulation and privacy over privacy debt to concerns. how much of that would move the stock in 2019? those are significant headwinds for the company. sarah: right now, the company has not really been as concerned with regulation that maybe the outside has. it's clear washington agrees that facebook needs to be held accountable, they just can't agree on how. they can't agree on what they would like -- what they dislike much it, whether it is two -- to do much moderation, whether it needs to be broken up. there's going to be a lot more scrutiny that will be of a company while regulators figure out what needs to be done. meanwhile, facebook will try to make the point that it is self regulated enough. so far, their efforts in that direction have not been flawless. taylor: we can't talk about

facebook without mentioning instagram. in many parts, instagram is the saving grace of facebook. what's the instagram 2019 story? sarah: instagram will be a huge part of the future of facebook. more than one billion people use instagram. users are starting to see it as an alternative to facebook that makes him feel better than facebook does. it's incredibly crucial to them, especially with advertising in the stories part of the app. facebook has seen the klein and people sharing for the newsfeed, but there has been a surge in people sharing instagram stories. if that behavior keeps up and figure -- facebook because i doubt -- facebook figures out how to monetize its, that's will be a huge opportunity. instagram is an aspirational place.

that thing can be very lucrative if you can figure out how to get into those buying positions. taylor: it's all about the monetization strategy. that is sarah frier. two years after the u.s. federal trade commission filed suit against qualcomm, it will get his chance to square the record. a jury trial begins next week in san francisco over claims that qualcomm is abusing his strength in the market for smartphone components. the regulatory agency will try to prove the company has forced others as well as apple to pay inflated license fees. coming up, microsoft acquisition of death of with one of its gitest --acquisition of hub. that's next. "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. ♪ this is bloomberg. ♪

taylor: in june, microsoft announced it was acquiring github. return toarked the software roots. emily chang set down with the microsoft ceo following the announcement and asked what guthub as to microsoft now and in the long term. >> if you think about what is happening in the world around us, computing is embedded in every place and thing. it is impacting our daily lives and economy from precision agriculture, medicine, or personalized education. it is being driven by software. every company is becoming digital. there is a linkedin stat which shows development in non-tech

companies or developers in non-tech companies are growing by double digits. 25% higher growth rate their then even in the tech companies. that shows we are in the early innings of what is going to be a set of tools and services required to empower every developer out there. that's the real strategic rationale. microsoft has always been a developer from its company. that's how we get started with the developer tools. now we are all open source. with that's coming together of github and microsoft, makes a lot of sense for us. we can contribute and state -- stay true of the originally so's. that is how we will github get up going forward -- develop github going forward. taylor: github has had issues growing a profit. they raised too billion dollars

-- $2 billion. how are they going to -- how is --rosoft going to >> whether you are working in a large company, to be able to use github as a free service. they have done a good job of having a premium model going from the free service to paid versions of it for organizational use. we think we can scale that. we first stay true to building the service up and making sure it is an open platform for all tools, our clients, all platform targets as well. we think we can bring a lot in reach,f scale and additional customers, and additional channels. we feel bullish about what we

can do for developers organically growing github. -- in theas been developer community about this acquisition. i'm sure you have seen some critics saying this is a sad and to github's independence and isir list of reasons why endless. how do you reassure them and bring them on? >> we are very committed to keeping that developer first you those of github going forward. between chris who is the ceo of github and to me, we decided to run this company independently even post close, operated as an open platform. in -- off exam are zamrin came to us and will be the new maintainer of github. he will stay true to what the github community demands of

anybody who is maintaining that community. we will have to earn the trust. our actions from the recent past should assure every open-source developer of what's microsoft does. they should measure us going forward. >> speaking of trust, there are new revelations about data, facebook shared -- data that facebook shared with its device partners. these controversies could have an impact on microsoft. how concerned are you about increasing tech regulation? >> overall, each company is er in terms of what their business model and products are. our entire business model is data,being custodians of and providing services to both consumers and organizational customers. trust is everything. secure the data and

use the data to benefit our customers. that is our business model. without it, there is no microsoft or products. tome, making sure we live up the high standards and expectations of our customers, and regulations already in place. take gdpr. we take the core tenets and put that for all customers all over the world. emily: you made some big buys including linkedin. i was speaking with the chairman who said he is supportive of more big buys if they are as successful as linkedin. should we be looking for you to make more big acquisitions like this? there is speculation about microsoft's interest there given its the only big tech giant without a foothold in the streaming space. us, the real focus is on

organic growth and investment. we are big investors in r&d. looke not always going to for secular growth markets, whether it is minecraft or linkedin were now get up -- github." we look for things that we can -- github. we look for things that can grow and move forward. i don't want to get into businesses where microsoft cannot contribute or execute super well on behalf of those customers. we need to be able to operate them. with linkedin and minecraft, we did a fantastic job to stay true to the east those of what those communities where. that's the same sensibility that we want to bring to github. taylor: that was emily chang with the microsoft ceo. the ride-hailing battle heats up. grab is taking on

competitors like uber with its very own super app. whatsapp is off of its highs and we will speak to an analyst who caught his rating on the stock. bloomberg.com -- 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. unstopand it's strengthenedting place, the by xfi pods,gateway. which plug in to extend the wifi even farther, past anything that stands in its way. ...well almost anything.

leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. taylor: this is bloomberg technology. as we look back at the biggest interviews of 2018, emily chang sat down about race.

>> it has served food, logistics, payments, financial services. doly: do you think you can all of these things well? >> that's why we are focused on a partnership. we want to bring together the best partners on board to leverage the assets we already have. -- we serve more than 7 million drivers. largest distribution in southeast asia. money inw do you make the partnership structure? >> it is different depending on what kind of services they are working with. there are three types of methodologies. can be fully embedded in

the product. app, they will be using services for deliveries and payments. there are also partnerships where we use different parts of our technology platform to see deliveries as part of the checkout. so those are different transactions. engages in the platform with the largest rewards program -- platform and southeast asia. we also launched a partnership with yahoo! last week. emily: grab was accused of power.monopolistic i know you plan to appeal. singaporetext, the government launched a preliminary announcement on some

investigations into the acquisitions. first, we disagree with this. there is a formal appeal service and we are in the process of doing that. we are also having ongoing conversations. isyou think about why this happening, it is one of the largest transactions southeast asia has seen and we are not surprised. emily: do you think you will moderate your strategy as a result? it is interesting to have the antitrust agency say it at the same time as you say you want to be a super app. grab, wehe history of have been creating markets and building new businesses via technology that changes things. because of that, every time we do anything that adds value, it is growing and changing and building in ways. disruption in a positive way.

so we have always been focused together to figure out how to deliver the best outcomes. it also takes a bit of time to figure out how to do it together. was emily chang. uber self-driving car's are hitting the road nine months after the death of a pedestrian in arizona. they have resolved their testing in pittsburgh. we spoke with the ceo in may following the incident. >> for us, it brought home the idea about safety coming first. as it relates to the tragedy, we have grounded our autonomous fleet. that was a decision we made. >> do you know when you will start driving again? >> the time will be right when the time is right. we are doing a top to bottom

safety review internally and with independent people coming into look at our culture, practices, et cetera, so that when we get back on the road, we know as a team we are getting back on the road in the safest way possible and the most responsible way possible. it is just one more way it hits home how important safety is and how important it is to engage with regulatory partners and various players who have played the game and worked in a safe environment for a very long time and have established a long track record of success. we have to learn. >> can you tell us about the ntsb investigation? >> it is ongoing. we have been working hand-in-hand with them and giving them the data they need. we will not be tweeting ahead of their findings. >> elon musk, take note.

>> i do not know what you are talking about. [laughter] >> this is a group that was moving fast. in part to meet deadlines by the end of the year. what do you take away from that as you move forward and set ambitious goals we have heard about? >> you cannot sacrifice safety. life and trade-offs in i think you have to be aware of unintended consequences and everything you do. there is a balance. you want to push teams to be ambitious and to innovate at the fringes. you want to get them to be uncomfortable. but at the same time, you really have to check yourself and go back to first rinse of bulls and ask yourself, are we doing the right thing -- first principles and ask yourself, are we doing the right thing?

is it at the cost of safety? so, you have to take a step back. we are a core technology company. we will win because of the talent of the technical people we have in our offices. but what's makes us different -- but what makes us different is we do not just deal in bits and bytes. it is hard to create a digital experience, but what is harder is to push a button and a car shows up. traffic and get in the way. a driver might decide to do something else. to make the experience dependable, affordable, delightful, is a big challenge.

where this idea of being a company that pushes forward, a company that challenges the status quo but understands that we do not just live in the digital world. we live in the physical world and that comes with compromises and responsibility that we have to be aware of. taylor: that was uber's ceo. coming up, stocks are off their peak this year and they could be facing more challenges in 2019. this is bloomberg. ♪

taylor: time for our future on the future of money, where we look at different aspects of how the digital world will affect money. piper jeffrey is reducing their 2019 estimates across companies to account for a cloudier outlook including payments volume growth in the year ahead. analyst joinser us. why have you turned less bullish on these stocks? >> the secular growth stories for the fintech space are as strong as ever. that is being driven by the rise of digital payments and systems digitizing. but if you look at the macro cyclical outlook, we feel like things have changed. it is a different world and we decided to get more cautious. so we took down the volume

growth estimates a few percent and we are not anticipating a severe slow down. given what we have been seeing without stocks are trading, like cyclical stocks given the fed the benefits we had this past year, we feel like the outlook from a macro standpoint has gotten cloudier. so we decided to get more conservative for the 2019 volume growth. taylor: talk to me about specific companies you are getting more conservative on. yesterday we heard from microsoft, who said holiday sales were up 10% year-over-year. how does that factor into your analysis for 2019 in terms of the specific companies you are worried about? >> to be clear, fourth quarter we did not change anything. so far, the spending trends have been solid.

back two years ago, saw 2016 and into 2017 we the global synchronized acceleration and consumer spending volume growth accelerate. and we had another step up in consumer spending growth in 2018 that was aided by the tax cuts. so we have seen an acceleration the last few years and we feel like now we will be decelerating. we have a number of factors. , the balances sheet reduction from the fed, asset sensitive stocks, cyclical stocks that sold off. so you have strong consumer backdrop but we think we could have a little bit of a slowdown next year and we wanted to reflect that with our estimates. taylor: you rightly said you are

not expecting a recession. so you are a little more cautious, but we should not see anything like what we saw with some of these fintech stocks in 2008, correct? >> yes. that is a good point. this is nothing like that environment. , from what we can tell, we think we will get back some of the accelerated growth we had. if you think about the volume growth for the payment companies, the building locks, you start with retail sales and that growth rate. that growth is faster than retail sales because they have the benefit of cash and check being displaced by electronic payments. so we think the retail sales component will slow. taylor: thank you. ahead, broadcom's hostile

takeover went all the way to the white house. ceoill hear from qualcomm's about national security concerns. this is bloomberg. ♪

taylor: at the start of the year, the world's biggest software companies revealed a massive security flaw. researchers found a design technique using chips from intel could allow hackers access to sensitive user data. with ceong sat down simon seeger following the news. clearly, these issues are quite serious. designedessors were many years ago and it is really important people understand that

security updates get pushed into their devices and that software gets updated to provide maximum protection against what a person might do in terms of exploding flaws. this is a very serious issue and one that the industry as a whole is taking very seriously. we are thinking about rpg designs and how to further mitigate against these issues. we are working closely with our parliament to make sure litigation is developed. we want people to install correctly and apply the maximum safety to any electronic system. emily: how long before remedies are fully in place? >> i think it will depend on which type of device you are talking about. for some, it is relatively straightforward. in other cases, there is a vast

number of companies involved in the supply chain. so it might take some time. we will be case-by-case and up who needs todual take on the software and get it pushed out to their customers. exactly how long it will take is hard to say, but everyone is on this with a huge sense of urgency. emily: android updates are pushed more haphazardly than apple. how much of a concern is this? do you feel android is more at risk? >> one of the things about some of the devices is they contain less sophisticated processors, which are less susceptible to the security issues we are seeing. there are a vast number of android devices using cpus that are not accessible at all to this issue. so it is not a fair

characterization. emily: when it comes to the hardware, is there a fundamental way for you to redo the chips architecture to avoid this? the features can dictate how much risk there is. so going forward, we will do that. for the sophisticated features, it is about the combination of hardware and software whether a risk is introduced or not. so what you will see going forward is heightened guidelines on how to write the software to using micro processors in the right way. what this has shown is we are in a new world of security. risks are changing all the time and definitions have changed. emily: how much of a wake-up call has this been for you?

has raised concern that the chip industry is to concentrated -- too concentrated? >> security is something we take very seriously. we have been looking at the deployment of processors and safety critical systems for many years. so we have always been looking at and thinking about how might a hacker get into a system, trying to stay two steps ahead of how hackers would try to exploit systems and learn as much as we can in a broadway. this is another case of a security issue we have uncovered. this is much more hardware fundamental than many security are down to how software is written. so this is a little different.

one thing to take away from this incident is the way the industry has come together and collaborated in a really positive way. the issues around a petition have been put aside as industries work together to mitigate this issue. there will be new issues in the future and the industry needs to react in this same, positive way. emily: do you think the way the industry has consolidated so much over the last several years would actually be a negative, especially when considering how widespread this flaw is? >> there are two ways of looking at it. you can say there is a lot of consolidation in a relatively hand,number, on the other with a small number of parties involved it is much easier to create a response. we are seeingsons it pushed out is because of the

diversity of the manufacturers involved. earlier this year, president trump blocked broadcom's bid to qualcomm on national security grounds. the order underscored concerns that the deal gave china the upper hand in mobile communications. sat down with qualcomm's ceo to discuss. time spent a lot of listening to shareholders and then working through how we could resolve what they wanted us to resolve. one of the biggest issues that comes up when you talk about a hostile takeover is deal certainty. i think in this case, it was proven that our board is pretty smart and circumspect to take a cautious view. ultimately it ended up that in preparation for 5g, the u.s. government did when it did, but i think today would be very

difficult to be in any type of big merger that requires approval, either in the u.s. or china. the political environment is quite difficult. one of the things we were able to do is navigate the environment as a company and remove the uncertainty away from our shareholder base. we are pleased at how stock has been performing. we have done all the things we have said we are going to do and will continue to do so. was thes ceo, what range of emotions when you found out it would not happen? >> i do not think you know how to react. it is unprecedented. there is no playbook. but luckily the law tells you what you need to do so we did that and then moved forward. our mentality now is that it is behind us. for the focus now

company is 5g -- 5g ramp and how we resolve the apple issue. emily: the president saw a national security threat. do you think that threat is real? 5gqualcomm is a leader in and i think they wind to make sure that is maintained. but quite frankly, i am not sure anyone really understands everything that happened. emily: qualcomm tried to buy next and you waited -- tried to , and the chinese government said to let the deadline lapse. the deal was dead. how big of a blow was it? >> we have moved beyond it. i was very clear in terms of what we were going to do and it played out not the way we wanted originally, but i think we moved beyond it and did the right thing is a company. , ate is no dramatic change least anyone's evaluation of the

mna in china. we decided to do was remove uncertainty for our shareholders and both companies and fun. it has -- and move on. it has proven to be the right decision. taylor: that does it for this edition of bloomberg technology. we are livestreaming on twitter. check us out and be sure to follow are breaking news network at tictoc on twitter. this is bloomberg. ♪

david: good morning. i am david in hong kong. >> welcome to "bloomberg daybreak: asia." s&p is raising nearly a 3% drop in a late turnaround. market on the bottom, or is it year and rebalancing? and beijing confirms new talks next month. david: industrial production numbers are o