emily: i'm emily chang in san francisco. this is "bloomberg technology." coming up, apple stock falls the most in six years after the bombshell news it cut its revenue outlook for the first time in two decades. china is in focus. apple has become the latest and biggest corporate casualty of the pullback by the chinese consumer, and the company says the trade war hasn't helped. is this just a china problem? will the rest of tech get dragged down with it?

the apple ceo now faces his biggest test since taking over. first, the shocking letter from tim cook to shareholders. apple cutting its revenue outlook for the first time in two decades, citing weaker demand in china amid the ongoing trade war with the united states. apple dropped a big can't that iphone sales -- big hint that iphone sales were dropping in november. here is a take of some of what we've seen on bloomberg television. >> they will still hit an all-time high in earnings-per-share this quarter, so profits per share will still be better, even though revenue will decline for the first time in a long time and, unexpectedly, they have hit a real speedbump in china and with the iphone. >> people who have been watching apple closely for a long time have known that the wall was going to hit at some point, and it's just hit in a harsher way than i think people expected. >> corporate earnings and what

-- pmi numbers, retail numbers, you name it -- markets will be very sensitive to this data. >> i think you are seeing the idea that emerging markets, particularly china, it's slowing faster than forecasted. that maybe actual gdp is much lower than what they normally tell you. >> it's not alarming to me, but it could be alarming to those who are calculating stock prices or forecasting what volume is going to be. >> we come up with a $240 target price. we may not necessarily get there within the next six to 12 months, but we do think that is the real underlying value of the apple stock. emily: dan ives, managing director at wedbush securities, and bloomberg's mark gurman, joining us to weigh in. how did apple fall off a cliff in china? how did apple not see it? >> this is the darkest day for

cook and apple in the modern iphone era. i think it was jaw-dropping that they did not really see this demand fall off -- fall-off in such a way they were able to predict. fundamentally, it comes down to 80% of this, in our opinion, is an apple specific story. they had a pricing hubris. in really saw it on 10r china. this was an apocalyptic type quarter and a defining moment for, cook, going forward. emily: apocalyptic quarter -- that's a big word. mark, put this into perspective for us. give us some numbers. or $9re is an $8 billion billion revenue shortfall, what does that mean? mark: first of all, i agree completely with dan. apple likes to point out these external factors or external forces, as cook sent in the email to employees.

but i think this is at least 80% self-inflicted, having to do with the extraordinarily high, stratospheric prices of the latest iphones. if you look at the pricing of smartphones in china, we did the math on this this morning some of the high-end phones cost ab out half that of an entry-level iphone. there are phones that cost 1/4 of the price. morephone xr is expensive than its competition that might have sharper displays and more features. it comes down to some sense of where, like dan said, apple needs to evaluate what it's pricing strategy is. it is clear that they have missed out on a good chunk of iphone sales, millions of units, this time around that they were expecting to take place in china. much is thisow due to the pullback of the chinese consumer, the u.s.-china

trade war, and a global and china market that are slowing down? dan: cook, you saw, used the macro card, china, tariff. i'm surprised he didn't cite the weather as well. fundamentally, this is an apple-specific pricing issue. 80% of it is them mispricing, miscalculating demand. the marketing, as well as the development, ultimately the future functionality on this latest version -- i do think they're seeing headwinds in terms of china consumer, in terms of the trade wars. but this was, for them, a china-specific problem. right now, they have to kind of look in the mirror and realize what they are going to do going forward. is it pricing cuts? is it more focused on the services? is it content? this is a fork in the road situation. how they handle this will

determine the future of apple and ultimately cook's legacy rests on what the next six months to nine months does in terms of this strategy. emily: i have a chart here in my gtb library -- gtv library. the company is trying to become more of a services company, but if you look at the white line, that is iphone revenue, still 2/3 of revenue that apple generates is from the iphone. mark, how can apple fix an iphone problem in china, specifically, when the iphone is their major product? mark: just one other point to add to what dan was saying, i would like to know where the people who are blaming tariffs are getting that information from. the tariffs have not gone into place yet, if they do even go into place. emily: very important point. you are saying the iphone has not changed in price as a result of the trade war. it is still the same price. mark: i would like to know where

that's coming from. maybe this happened in the last day or so. it didn't. the prices are the same. on the services point, apple is wine to position themselves -- is wanting to position themselves as a services company. the reason why is what we saw shake out over the past few weeks. they want to show investors they are not a one trick pony. if the iphone was selling at stratospheric levels, you would not see them position themselves as a services company. this is what they need to do to show they are going beyond the phone. people point to the iphone being about 2/3 of sales for apple, but that's not really crew -- true. what about all the other products, the apple watch, the air pods? you can't buy an apple watch or without anods iphone -- iphone.

it all comes down to the iphone, including services. we saw those astronomic app store numbers come out from apple one day after this release about the revenue recalculation. where are app store sales happening? on the iphone. it all comes back to the iphone. they have to figure out a way to keep pumping out the iphone or a new hub. originally, it was the mac, then the ipod, now it's the phone. they need to get the phone selling well or they need to find the phone's real successor. pay,: apple music, apple those are generated mostly on iphones. i did sit down with tim cook in june 2017. this was in the middle of when apple was seeing some declines in revenue in china. i asked him about it. take a listen to what he told me then. tim: china, for us --

we make all of our decisions for the long-term, so we are not investing for the next quarter or next year.. we are thinking about many many years out. as i stand back and look at china, i see megatrends there that make china an incredible market, and i don't mean just a market to sell in. i also mean a market for application developers. and so, it's an incredible marketplace for talent and in terms of the size of the marketplace. and so, this -- the short-term kinds of economic moves up and down, i don't get too excited about. emily: after that interview, china did return to growth for apple for a few quarters. dan, my question is, is it still potentially $84 billion -- is calling it an apocalypse an exaggeration? dan: as someone that has covered

this story for decades, and obviously mark knows as well as anyone, this was, in our opinion, clearly the most jaw-d ropping miss that we have seen out of apple really since the company's been public. i think fundamentally it is because of iphone. miss on top line -- especially given supply chain, how they see demand, in terms of in the field -- i mean, this is, put in numbers, 25 million to 30 million iphones that they are not going to sell. if you look at that in the scheme of things, that's why it's apocalyptic. it,erms of them not seeing in terms of just how soft china iphonest's 20% of all in potential for upgrade opportunities. going forward, they need to make a decision one of two ways. ne, cut prices -- one, cut prices.

have price points and features that drive upgrades. two, continue to do the same thing and have the hubris. that's not a good ending. i think right now that's why you are seeing the all hands meeting fork in the road for apple. emily: they do have three phones selling for over $1000. dan ives, mark gurman, thank you. we will continue to cover this throughout the hour. mark zuckerberg's multibillion dollar stock sale ground to a halt in the last month of -- last quarter of 2018. compiled by bloomberg. the white house's top economic advisor has cautioned more u.s. companies can accept more headwinds due to the u.s. -- due to the slowdown in china.

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emily: apple ceo tim cook is blaming trade tensions in china for not helping its forecast. now one of trump's advisors says there may be more pain to come. he told cnn that it is not just going to be apple. "i think there are a heck of a lot of companies in china that will be watching their earnings be downgraded next year until we get a deal with china." that puts a lot of pressure on china to make a deal. joining us from washington, alex. does this news from apple, you

know, put more pressure on the president to make a deal or not? alex: i think there are two ways to look at it. there is the white house way of looking at it, which is that problem u.s. companies have is china's economy is slowing down, and that is slowing down because the tariffs are working, in other words trump is winning is trade war. i'm sure that trait -- shareholders and executives are looking at it as this trade war isn't helping anybody. it is hurting china's economy, which has the effect of hurting us. i don't think -- i don't know if kevin hassett was on message with those remarks. emily: any indication -- there is a lot going on in washington. indymac it -- any indication of how this news has been received? alex: investors heard kevin hassett say that companies with a big footprint in china will be cutting earnings, and they took his advice. there was a big selloff.

yeah, it's -- they're being heard, and it is having an effect. emily: bloomberg's alex wayne, thanks so much. is there more pain to come for the tech sector? has just published his top 10 internet surprises for this year. think this news from apple will bring down the rest of the tech market? >> for those companies who have exposure with high price points in china, i don't know why this wouldn't be a pretty reasonable read. i don't know how much of this is apple specific. is the chinese economy slowing down? i think that's broadly understood. i look at the other faang names . their exposure to china, for bad reasons, is pretty limited. in the long-term, i think they wish they had a lot more exposure to china. emily: all of these companies

are blocked in china. >> there are a few companies that have a presence, but nobody has more than mid-single-digit revenue contribution coming from china. we have a high-priced, large exposure company like apple. they will see it before anybody else does, and they may be one of the few to see it. emily: to get a little more detailed, if you look at apple, it is pretty cheap, trading at 11 times earnings. google is 19 times. facebook, 16 times. are these companies overvalued? will there be a reckoning as of what's happening in the broader market? -- because of what's happening in the broader market? >> i think we've already seen a reckoning. the oversold situation is most acute at google and amazon where fundamentals have not changed at all. growth at google has been extraordinarily consistent. it has grown 35 straight quarters. that is unheralded in financial history. they are around 23%

year-over-year, yet the stock is trading at just a small premium to the market. these are unusual secular growth assets, scarcity growth assets. they provide very good risk-reward. this has to be in the top quartile of buying opportunities. emily: was mark zuckerberg right not to sell any shares in the last quarter? >> they announced in the beginning of december they would do a $9 billion extra share buyback authorization. what your money where your mouth is. both of these companies should be an thing up share repurchases -- should be amping up share repurchases. emily: but people hate facebook right now. >> i'm not sure they hate it. emily: there is distrust. >> they have to earn it back. i keep thinking about netflix. three years ago, they had the fiasco. they raise prices, and they lost subs for two quarters. the stock did the meltdown. a year or two, before they

stopped -- they regained trust. you can damage brands, but they can be fixed. our survey shows declining satisfaction scores with consumers and advertisers on facebook. this can be fixed, but we think it will take time. i think the risk-reward is very attractive on facebook. i just think that is more than priced in. emily: where is the reward? they have started monetizing instagram, but you could argue it has some of the same problems. >> possibly. you just quickly went over whatsapp. this is over one billion users. there are multiple messaging -- facebook's advantage is the portfolio they own. the two largest social media apps in the world, the two largest messaging apps in the world. i think you have a company with a lot of controversy. they have -- i don't know how many feet people can have. however many they have, they

have shot themselves in all of them. i think you buy the stock before the crowd buy the stock before the crowd does. emily: let's talk netflix. you are optimistic about subscriber growth. more original programs moving forward. all of the studios in hollywood are pulling their movies and tv series off of netflix. what netflix is facing is something that i talked about on this network before, which is they may be the aol of ott. emily: could netflix be the aol of the over-the-top era? >> that's a great line. i completely disagree. whoever has the most subs can

can afford to buy the most content. there is -- do not want to sell to the biggest buyers. emily: what about amazon and regulation in general, not just as it applies to amazon, but also facebook and google? we know that congress has taken a closer look at all of these tech companies. >> i don't know if we are at peak reg. these assets are so big, they should because delly scrutinized, given the size of the -- they should be constantly scrutinized, given the size. we had two massive fines against

google -- emily:google -- emily: in europe, not the u.s.. >> you could see regulation. did that impact google's growth rate? no. we haven't seen anything undermine the value proposition. you want to go after amazon for market share issues? it is half the size of walmart. you would have to first bust up you would have to first bust up walmart before you bust up amazon. i hope we are not in an economy when we are going to bust up people just because of size. i look at amazon as an extremely innovative, successful company, and they seem to be much more politically astute than these other companies. they implemented a wage increase. i think they are a little savvier and smart in terms of where they positioned their

positioned their headquarters, etc. i think the regulatory risk above all these names is least likely with amazon. emily: fundamentals stay intact, the stoxx will come back to reflect this fundamental -- the stocks will come back to reflect the fundamentals. emily: always good to have you. always good to have you. mark, we will have you back many times before the end of the year. coming up, china wants to be one of the top aerospace powers by 2030 and just got a bit closer with its latest milestone. we will bring you all the details. this is bloomberg. ♪

has won abnb preliminary ruling that blocks a demand from new york city to share its data. the company will not have to comply with a law requiring them to turn over renter data until a lawsuit over the issue is resolved. the law, set to go into effect february 2, threatened to cut airbnb's bookings in the city by half.

cfo -- the cfo has been replaced. she will report to jack dorsey and says she will help "strengthen our discipline as we invest, build, and scan." the chinese have landed a lunar probe on the far side of the moon. it is the first ever spacecraft to reach the surface that always spaces away from earth. the nation's space budget is about $8 billion per year, second only to the united states. starting the new year with a new recommendation on apple. why his outlook has changed for the better, next. plus, why investors are punishing u.s. companies vulnerable to china slowdown. we will discuss. this is bloomberg. ♪

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♪ this is bloomberg television. right now, want to welcome our colleagues from daybreak asia and australia. about theant to talk global impact of the surprise revenue cut from apple. shery, you have been looking at the u.s. market that closed over an hour ago. where do they fall? reporter: you saw the semi there.or index, falling a big impact on concerns of apple. downsuppliers, sky works

10%. we have to expand the story to not only talk about apple, but concerns over the economic slowdown in china as you see companies talking about the potential impact as consumers by led. duffy technologies also falling. jpmorgan releasing a note back in july talking about the biggest china exposure in the u.s. stock market being technology, industry, consumer staples and consumer discretionary. that is a really long list. emily: we know going into this that over the several -- left several weeks, apple suppliers have also cut their revenue forecast thomas so there was signs something was amiss. many are based in china. what are you watching? reporter: it is almost a bit of a precursor, the fact we are

seeing some of these supplies konghong kong through hong seoul -- hong kong to seoul. -- we did see declines leading in asia and just a reminder about a quarter of those [indiscernible] no surprise the south korean markets plunged. over in taiwan, one of the ,iggest suppliers for apple over in hong kong as well all fun. today, japanese markets come back. lg and sharp make display screens. we are expecting to see that affect continue their. inly: i want to bring you pierre, who has upgraded natural

-- upgraded apple from neutral to sell. we had you on the show when you put the celebrating and you believe there was big bad news coming. is this what he thought? -- what you thought? >> if you look at tim cook's letters to shareholders, that is interesting to read the first one, iphone down 15%, shipments down. he talked about two things. overall, there was less replacement than what they were expecting and the second thing he mentioned is a difficult emerging market, especially in china.

that is what the state is today. the reason we had this areussion is because we anticipating a couple of things. iphone users spread much like the iphone, but they stick to their phones longer and because they do that, there is pressure year after year on iphone sales and the second thing is last year, the iphone x was extremely ofcessful, so a lot consumers replace the iphone for the iphone x in 2018. that's really what drove most of the weakness today. reporter: they are more expensive. you don't want to continue buying very expensive phones. >> i think price plays a big role. it is difficult to quantify, but

if you look at the typical iphone buyer here in new york, three years ago that consumer would be buying a new iphone every year. [indiscernible]$1000 or more and a watch for $450. with all that in hand, the consumer is reluctant to come back to the next year. i think apple has a very good couple now in the next of years, apple will have to give some of that back with longer replacement cycles. emily: we have seen a slew of how thees, showing average target price has dropped. the blue line is the average the on target price and

white line, apple shares. you have upgraded to neutral. do you think this is as bad as it gets or it only gets better? on an absolute basis, things could get worse. i call what happens in the next few months? specifically for apple, if you ask me about risks specific to apple, i think it is because itt can get is an early cycle business mean if there is an economic slowdown, they are the first to get hit and then my concern about replacements is what the company talked about last night. these things are behind us so for what is specific to apple, i

don't see significant risk ahead. if you tell me china is going to continue to deteriorate -- [indiscernible] theor: let's talk about bloomberg library showing the fall of apple, more than $450 billion of market cap lost since october. what is left -- what is next for this stock? my 2020 earnings expectations will not change overnight and they are in the $14 region. has $130ny still billion of net cash. attractives entering evaluation territory. of course, when the core

business of a company is in a freefall, investors usually don't look at valuation much during a is literally to start thinking about whether apple is a buy here. , apple isf valuation becoming attractive. that theto member non-iphone business of apple is growing, so that is still very [indiscernible]business. people that fine iphone are a group of people that is not growing anymore. with the secondhand market is growing. new devices like the watch are still very small. right, global head of

text, we will watch to see if your views send out. atwant to take a deeper look apple's impact on suppliers. reporter: we saw the south korean and taiwanese suppliers reacted negatively. concerns about slowing shipments, i want to bring out someone taking a deeper look at numbers.of these they will be selling in japan for a lot of reasons. impact,y at the apple japan, that is not just the suppliers themselves, but also a broader market.

japanese index futures indicating about 3% down in that is because what has been going up -- going down more broadly. if we take a look at the chart at what has been going on with the suppliers, you can see how we have apple itself, which is a taiwanese company and most apple exposed in the supply chain and a quantifiedevenue relationship in japan and you can see how the asian suppliers, they already started falling some time ago and apple would need to fall further to catch up to them. you can expected to drop quite sharply as it catches everything else. you have to think there is a chance that the asian suppliers

can consolidate. anybody needs to hope that is the case because as you were mentioning, they have been a what isdiscernible]with happening for apple. they are reacting to what they are seeing and probably have the best information about apple's outlook because they are talking with the company. that hasn't shown up in what has been going on for the last three to six months. emily: now we actually know what the facts are. otherinteresting that the clients, we had the flash crash in japan, maybe a reason other than apple and the timing. the where we go from that pen on the question on is this a

doom and gloom story or is this apple specific? >> apple itself has direct effects, but the real problem is what it is doing too busy guys -- busy guys -- the zeitgeist. which dealt as well speaks more directly to the american economy, but also to be global economy and that is the economy story and a risk appetite story. we talked about the flash crash, one of the pairs at the absolute center of that crash was the audience -- aussie yen. risk proxy used as a . it has been used to track world stocks and you can see on the peaked sometime

back and and they started to come down. asian stocks have been a bit sticky, maybe china hopes -- for whatever reason, meanwhile, the pause again keeps crashing and it really crashed yesterday and that signaled you have the potential for serious decline going forward in equities. emily: we intend to carry on with more volatility it seems. in sydney, lots more to come here on bloomberg.

emily: templates letter on apple's woes blamed and unforeseen slowdown in china. we anticipated some challenges in emerging markets, we did not see the acceleration, particularly in china.

apple has been struggling to grow its business in china for years and losing marketplace to local rivals. to dig into what is happening to apple in china, we go to new montana, a venture capital based in beijing that had over $1 billion based in management. i'm just curious on the ground, are you hearing from chinese consumers that they don't want to buy an iphone because it is american or are the phones just too expensive? >> i think it is unfair to try to tie this to the trade war. the sentiment in china has long been that apple price itself out of the market with local areetitors, whose phones just as good if not better and

much.nly half as given that, you make an excellent point that apple and templates should have seen this coming. why didn't they? >> i think that is the question investors should be asking apple management right now. it is possible that in the two months since apple last reported their earnings forecast that economic conditions in china have deteriorated more than apple anticipated. that is certainly possible, but it is also true that smartphone sales overall in china have been declining since the middle of 2017. the economy -- economic growth there has been slowing for some time. the trade war protested -- pertinent -- persisted for most of 2018.

everything was going great in china, so all of these trends in china and the change in smartphone buying behavior in general across the world, apple never talked about those trends and apple never readied investors for the possibility of weakness until it was glaringly obvious to the company and everyone else. emily: i want to take a bigger picture look because i have a chart that shows the relationship between the u.s. tech stocks and china tech stocks. the blue is u.s., the white is china. the green shows a measure of correlation, which over the last several months [indiscernible] has been increasingly correlated. have closely tied -- closely tied are the fortunes -- how closely tied are the u.s. and

china stocks? >>--even if the smartphone market, apple has not done a good job to compete with local rivals as they attack new blocks like indonesia, southeast asia, where those operators are even a 10th of a price of apple while offering similar tech specs. i think chinese companies more more frequently, you see that with private tech companies as well as public once. while i think there is investor china is, i think targeting part of the world that is still under traded from a technology perspective and offers a lot of upside. emily: you talk about how tim

cook needs better ideas and you focus on the shareholder letter which is we cannot change macroeconomic conditions but we are taking other initiatives to improve our results. one such initiative is to trade in a phone at the store. that sounds great, but that is the -- is that the best you got? agree, that was the only specific strategic change that tim cook mentioned and it was pretty lame, to be honest. it is true that the most important market for apple and other smartphone makers is the replacement market. people who already own iphones are buying the vast majority of new iphones, so apple has an incentive to make it easier and more appealing for people to andade older iphones devices to new models. the fact is, apple already

offers a replacement purchase program. it has not changed the replacement rate, which is the smart phone market is saturated. people are holding onto devices longer and longer and that means new iphone sales are under pressure and tim cook offering an idea. all right, rumored opinion, we appreciate you sharing your opinion with us. thank you both. still ahead, apple faces new hurdles and challenges that demand slowdown. will tim cook be able to save it or sink with it? this is bloomberg.

2018, tim cook

celebrated his seventh anniversary as apples ceo. it now, his eighth year is off to a rocky start. the weakening iphone demand could be his toughest test yet. tim cook really built the china market for apple. steve jobs never visited china wants. tim cook has gone there several times. how big of a test is this for him? test.s is a very big this is the world's most populous country. this is the country with the most smartphones. growth crucial to their and they just price the device wrongly in that market, theseally when you have other competitors putting their own devices into the market and -- and they have got a

lot of comparable features. that did not happen here. going into this last quarter, they thought they saw a lot of growth. they had a lot of reason for optimism, but i think they failed to for see how sluggish the demand, whether it is down to the trade war or economic a sore, china has become subject for apple. emily: he has been making great effort to engage. does this follow him? >> i think the trade war has something to do with that. i think he has control over how they compete in that market, so

did they price it correctly? i think it is down to what is the next big thing? that is the question surrounding tim cook at this time. ar,s it a are, -- autonomous vehicles. you can no longer rely on this smart phone that accounts for two thirds of revenue. emily: they never made a huge acquisition, beats was the biggest. if service is the next thing, that depends on the iphone. thehey use services on watch and ipad as well, but you are right. absolutely on the iphone. emily: we will continue talking about this. thank you, that does it for this my special edition of bloomberg technology.

our global breaking news tictoc on twitter. this is number. -- this is bloomberg.

anchor: a very good morning. in sydney, where australian markets just opened. anchor: welcome to daybreak asia . anchor: our top stories this friday, apple's worlds and the week factor adding to global growth concerns. apple stocks plunging the most in almost six years.