my name is antonio and i'm a technician at comcast. we're working to make things simple, easy and awesome. ♪ emily: i am emily chang in san francisco. this is "bloomberg technology." resultsirst-quarter slightly be lowered expectations. we know the extent of the sales plunge in china, $5 billion. we will dig in into the results. appears inhuawei court after new charges filed, while china called on the u.s.

to stop the unreasonable crackdown. plus, apple is not the only tech company reporting earnings. we will look at tesla and facebook. , tim cook let investors know the company was cutting its forecast. .hares are up revenue was higher at $84.3 billion. the number we were waiting for was china revenue, a steep drop-off. almost $5 billion less revenue during the holiday quarter. 13 point $1 billion versus $17.9 billion. to discuss, we have our guests. i have to zero in on china. how bad is it? >> some macro indicators

collapsing the last two months of the quarter. let's not forget that apple was up 16% in two q3 last year. -- into q3 last year. inwas a dramatic lapse china. it's not just apple. is a collapseeing in consumer confidence over all. emily: why? just because of taxes, broader sentiment? does it have anything to do with the trade war? what is the root of this? ,> we continue to think apple specifically a this is priced phone that should be 15% to 20% of that is from a this is priced phone come also from a technology perspective. , which consumers

represent 20% of all the upgrades for iphones in the next 12 to 18 months, they looked at his phone and walked away. weak,w china would be but it fell off a cliff. emily: hang on. is due to thethis miss pricing of the 10r? 10r is focused on china. r. focus in china was 10 specific, but a lot is the ms. priced phone. this -- mispriced phone. 20% of iphone upgrades are in china.

that is the key. that is why this call is key to have china turns around and how tim cook and apple are looking at it. competingre are smartphone makers who make cheaper smartphones than the iphone, but what do you attribute this to? >> this last comment, the entire sector in china fell by the same rate apple did. samsung recording huge losses in market share. we have some chinese players rising in market share, but the overall market is suffering, not just apple. emily: why are some rising and apple not? >> apple does have the premium segment. the premium would be suffering more, but the overall market fell. i think apple is more or less in

the middle of an overall contraction in the market. emily: when you look at iphone u.s. in other regions, sales slightly up year over year , sales in europe slightly down, so where is the growth going to come from if it is not coming from china? linchpin, bute you don't need to see mega-growth. growth is% type of all you need to overtake. you want to see a stable install base. up for ans are coming upgrade. the fear weighing on the stock is the install base, that that takes down. we believe you start to see a china rebound, but only if they r,t prices more with 10

otherwise, it would be a lost iphone cycle until september. that is the worry and the debate here. do they cut prices? the call is underway. tim cook is speaking, saying the macro economic conditions were much worse than the company initially thought they would be. break out unit sales for the first time, but they did give us revenue for product categories, $52 billion for the iphone, $7.3 billion for wearables and home accessories, $10 billion for services, generally in line. what do you think the significance is of these numbers not having those unit sales for the first time? >> there was an update given during the investor letter, the

install base is up 100 million, 1.4 billion install base. emily: 900 million are iphones? >> yes, that is an estimate. as you cited those figures, category by revenue by , we have the mack u of 9%, wearables growing of 33%. the wearables segment of ♪ ♪ up. the business is still growing at 19%. that is growing well. i think this is a healthy ecosystem, healthy number of users. there is a growing number of users and we have a great services story. emily: reports of apple's demise are greatly exaggerated. >> they have been for many years. emily: would you agree? >> i would disagree with that comment.

, if you look at this, the story has changed and the focus is on the install ace side. when you look at -- base side. look at services, china is a linchpin if customers do not upgrade. as someone who has been on apple, they are entering a different type of white-knuckle period. that is why investor reaction has been some negative. sot you want to's -- negative. the biggest number here, the thing that all investors are focused on, the services gross margin above 60%. that is the line in the sand.

that is the first time they are breaking that out. that is key to the fight nation of the services business. >> margins are up on services. during the quarter, when we had a better story for apple, they were 50%. now 65% -- 64%. margins it's not a bad one. i think we will see an increase going forward. question on the install base is that in order for that to decline, we would have to have people switching out of apple products. we are not seeing that. they are staying still within the audience of apple. we should keep an eye on it, but i'm not sure loyalty is going in the other direction but up. emily: tim cook speaking, saying

customers are holding on to older iphones longer than in the past. we will continue our debate. facebook could face legal challenges over alleged privacy violations. one of attorney general filed his own lawsuit last month over the cambridge analytical scandal. he was the first official to take action over data obtained by a political consulting firm with ties to president trump. he says it violated consumer protection laws. some attorneys general have formed a multi-state group to investigate such claims, new york, massachusetts. they spoke it declined to comment on the remarks. speaking of privacy, facetime flaw, a troubling security log that can hijack your phone's camera before you pick up. and, continuing coverage of apple earnings is next. check us out on the radio,

bloomberg app, bloomberg.com, and in the u.s. on sirius xm. this is bloomberg. ♪

emily: apple's first-quarter report, tim cook calling for greater data privacy protections. 24 hours before delivering results, tim cook tweeted "we must keep fighting for the kind of world we want to live in. let us insist on action reform for privacy protection. the danger is real and the consequences are too important."

hours later, a flaw was expose that could allow people to see and hear you before you pick up. apple has disabled the feature and said a fix will be available later this week. to discuss, we have our guests with us. this?barrassing is >> it is a slippery slope. if you look at tim cook and apple's dna on the privacy side, look, you saw it at ces. they took a shot across the bow. you put yourself on a pedestal. that is a danger here. it speaks to broader concerns in tech, in terms of privacy and potential regulation, and apple is caught in the crosshairs.

that is why this is a big focus for technology come across the whole sector. emily: look, it doesn't look at good. they are fixing it. tim cook has put himself and the company out there. right side of history when it comes to privacy, taking on facebook and google. there are some things you could point to as hypocritical. >> that is true. ,ven a company like microsoft focused on corporate security, they also get caught up in bugs and issues. in the software business, out of one million lines of code, you will have failure. what is important is messaging and getting in front of the problem. they shut down facebook immediately. they've -- facetime. they will have to push out a fix

immediately as well. the quick responses what matters. emily: how much is apple really on our side? >> the core business model is at stake here. with apple, they are saying you by our hardware at a premium and we will protect your privacy. struck the bargain being , where they don't sell access to the data, which is the opposite business model. apple has this notion that we are charging a premium for product, but will basically not sell anything else. that is still the case and has not changed. the logic is to preserve that persona, the brand value, premium equals privacy. emily: is there any indication what tim cook is saying is impacting other companies? >> that is a great way of summarizing it.

, there needs to be a line in the sand and terms of how .hey view themselves, the dna in the valley, it is a divisive issue in terms of how apple has ite after the privacy, but is important because it is their business model. , especially iny today's world, where you are seeing more breaches and other things out there that consumers worry about, their protection, their privacy. it all changed last month. once mark zuckerberg went in front of congress, that is where apple and tim cook realized they needed to draw a line of distinction. are upapple shares almost 6% on the back of these results. apple you are wearing two

watches right now. >> correct. emily: why? >> i carry two phones. i will lose all the alerts. this is my remote control to my phone. if i don't have it, i don't get calls. emily: you're not worried about privacy? >> know, i am not. emily: let's talk about what is happening. forbillion dollars wearables, home, and accessories. what does that tell you? >> wearables separate from home is going at 50%. that has been going on for some time. the apple watch is a bigger business than the ipod ever was. it has overtaken the historic ipod. we are seeing a tremendous growth story there. the latest version now has a bigger screen, on board

telephone function. it is just a great product. the health angle is something emerging as well. functionality, probably more sensing there. apple is using the watch as their focus. the negatives here are that the ,ther category seems to be flat the home pod and apple tv are not booming. they are steady, but not growing. that may need to be addressed with services going forward because providing unique content , there are rumors they are getting into the studio and production business, and that would mean may be a boost in that category. emily: i have seen more people wearing the apple watch, but how big can this business be? butt has been successful,

it is an appetizer at this point. be moree, it could significant, but right now the focus is hardware, iphone-led services. the question is how do you get more services into the flywheel. that is key for apple. but ite more wearables, comes down to content. we strongly believe that is what is missing in the product or folio. you need content to drive into the services. when you go through a dark chapter, like they have gone through the last few, now you have an install base. put a fence around it and drive it with wearables. there is a silver lining out there. are astim cook saying we confident as ever in the

fundamental strength of our business and we have a strong pipeline of products and services with exciting announcements later this year. what could those be? >> he says that all the time. i don't know. i think content deals are something people are looking forward to. more health care things are exciting. they are doing trials. more people will have diagnose diseases through apple products than some of the ekgs and doctors offices, so we are seeing something there. it may not be a business for a long time to calm, but these of the things that drive loyalty and customer satisfaction. see those numbers in the 90's all the time with apple. you have an installed base that will be reliable going forward, 1.5 being people using apple products a couple of quarters for now. from now.

that is more than the windows install base. great audience for apple to introduce new products and services, really experimental stage here. emily: we will continue to cover earnings. we know if you don't pick up on one line, we will call you on the other. we continue this conversation about apple throughout the hour. you can turn to your bloomberg terminal. tliv . out we are live streaming on twitter. follow tictoc. this is bloomberg. ♪

emily: staying on earnings. bookings slowed, and a restructuring program announced to compete with salesforce and oracle. it expects 3000 staff to take voluntary leave packages.

the company will be resilient in the face of trade tensions, but gave a cautious outlook. >> there is no question there is tension over the tariff matter with china. we are hopeful that will resolve itself. we live in uncertain times. emily: google is introducing a new process to verify that advertisers for the eu parliamentary election. and al release a report searchable library to make information accessible. the european commission acknowledged big tech companies have made progress, but more is needed to ensure adequate transparency. the ceo of pandora will step down after shareholders approved the deal for sirius xm to acquire the streaming site. others will also ask of the company.

jim meyer will oversee the newly combined company. coming up, u.s. ramping up its fight with huawei as trade talks resume in washington. how will this impact the continued conversation? we will discuss next. tim cook a striking of bullish productying exciting announcements are in the pipeline for later this year and the company will continue to invest. thee shares rising to highest level in a month in after-hours trading. this is bloomberg. ♪ ng. this is bloomberg. ♪

place, the xfinity xfi gateway. and it's strengthened by xfi pods, 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.

♪ emily: this is bloomberg technology global link where we joined bloomberg daybreak: asia . i'm emily chang with shery ahn in new york and haidi in sydney. let's take a look at the global tech news of the day. haidi: tesla needs a 21% rally a march 1, if not, they face $920 million bill. the amount of bond by convertibles in 2016. they can avoid the payout by a by mixing it with stocks. privacy of the biggest

related problems apple has ever dealt with. iphone customers discovered a software bug that lets people listened into others through facetime. remotely.disabled it it would release a software update this week. staying with apple, the company projected quarterly revenue that came t close to wall street estimates. the punishing and to 2018 has not gotten any worse. it will be between $69 billion, looking for $58.9 billion. better than expected earnings in the key holiday quarter. those are the top global tech stories. emily? emily: thanks so much. sticking with apple's first-quarter results, i want to of research who joins us from san diego. before we dig in, take a listen to what tim cook had to say on

the apple call moments ago. >> our customers are holding on to the older iphones a bit longer than in the past. when you pair this with the macro economic factor, particularly in emerging markets, it projected in iphone revenue down 15% from last year. our iphone results accounted for significantly more than the entire year-over-year revenue decline. emily: the macro economic conditions are one thing and cook said it was worse than apple anticipated. you hear him saying that people are holding onto their iphones longer. we know this but he for the first time is kind of admitting it. what do you make of that? guest: i think it speaks for itself. according to the performance of iphone sales, there is very little doubt that the iphone cycle is a failure. the xr, the pricing points, the slew does not make sense.

especially in emerging markets where the trend of commoditize asian is more evidence than the u.s. and north american markets. they are facing intensifying competition. of course, coupled with the weakening of the domestic economy in china, as well as perhaps in europe, we are seeing the big drop of 15% year-over-year, dropping iphone revenue. shery: iphone prices seem to be falling in china. this chart showing you those numbers. we can actually see some deep cuts in some models, as much as 15% or so. if we are expecting that price the fall from last year to now in january, could we see some help coming from lower prices in other online stores, not necessarily apple stores? junheng: that is right. apple stores never really

offered the direct discounts. it is the resellers -- as well as other social e-commerce platforms offer heavy subsidies to move the unit sales. the good news is we are seeing the volume sales pick up quite a bit when discount stephen. deepen. the bad news is i believe it will impact the margin for the oem eventually because the resellers are not willing to take all of the lots. as you see on the chart, for the discount was almost 20%. appleing to our checks, has been subsidizing high single-digit to the resellers and distributors on those e-commerce platforms. emily: interesting that apple would help there. how much do you think what we

are seeing is a result of a china-u.s. trade war, and will the short-term therefore if a deal is struck? junheng: i don't think this has anything to do with trade war at all. i think it is a product cycle. the iphone's weakness is not just in china. pretty evident in the u.s. and europe as well. going back to tim cook's point, they're great phones. they can be used beyond two years, three years. the replacement need has diminished. china ande height of the canada tension, geopolitics wise, we are seeing sales for canadian retailers. i don't think government p.r. guidance played a role. i think it is a product cycle.

iphone 8's the ramp up upds to wrap innovation -- ramp up innovation. those in china have the ability to get the iphone 6 than the current generation phones. the value proposition is not in favor to apple. shery: it seems that the trade war is having an impact on apple suppliers. they are talking about moving to india, southeast asia. how can we expect these numbers out of apple to affect asian suppliers? junheng: i think that is a more direct impact of the trade war on apple. the impact is on the supplier and also the manufacturing base reallocation going forward, but that is not have impact on this current generation of phones. it will have impact for the strategic supply chain reallocation globally going forward. this year, we suspect apple will

gradually move about five to 10 million iphone units of production from china to india. those phones made in india not for the indian market. those are higher end, this yea'' s iphone for the u.s. market. just in case, i think they are preparing for the trade war, trade tension to be the background noise for a long time. shery: thank you for joining us, joining us from san diego. much more ahead, so stay with us. this is bloomberg. ♪

emily: as we have been reporting, the u.s. has hit

china's largest tech company with a string of charges ranging from ip theft, fraud. the indictments against huawei ahead of crucial trade talks in washington. tom mackenzie has this report from beijing. tom: the u.s. department of justice lifting the lid on a more year-long investigation into china's largest technology company huawei. allegations of bank and wire fraud. allegations the company conspired to deceive u.s. banks into getting around iran's sanctions. allegations that huawei stole technology from t-mobile and there is the allegation that huawei offered bonuses to employees to pinch technology from other rivals. the u.s. also officially asked for their extradition of the huawei cfo from canada. huawei put out a statement denying the allegations, saying

it has no knowledge of any wrongdoing by the cfo. wilbur ross, the commerce secretary, says these criminal charges will not come up during the talks with his chinese counterpart, that they are separate from the trade negotiations. if they do not come up, they will be the elephant in the room because one of the key charges against huawei is intellectual property theft. intellectual property theft was right at the heart of this trade dispute. that is what triggered the imposition of power against chinese goods in the first place. emily: now, huawei has reacted to the charges by saying "the company denies that it or its subsidiary has committed any of the violations of u.s. law set forth in each of the indictment. not aware of any wrongdoing by ms. meng in the u.s. will reach the same conclusion." huawei was ordered to appear in federal court on february 28 to face charges.

the company engaged in a scheme to steal trade secrets from t-mobile. i want to bring it our executive editor tom giles. what is the very latest in terms of the impact of trade talks in washington? tom: timing is everything. these charges have come down just as trade negotiations enough. there are two schools of thought. one of them is this gives u.s. leverage. it shows we are serious and gives us a negotiating chip against china. there is another school of thought, and we spoke on bloomberg tv yesterday to a former u.s. trade official who said this undermines the u.s. case. this has the potential to show china we are not serious about either side, either the trade issue or the case against huawei because why would we use one as a bargaining chip against the other? in some ways, it kind of undermines our case to show we are willing to make concessions on this side of things in order to get what we want here. well, how serious were you about

this side of things in the first place if you are going to use it as a negotiating chip? it is a different school of thought. it could go either way as far as u.s.-china is concerned. emily: the u.s. has formally requested extradition for meng from canada to the united states. what is the process? to: canada has 30 days assess whether to honor this request. it is a very interesting political situation that canada is left in. canada is paying a high price to be the u.s. ally here. had canadian nationals arrested in china, seemingly as a result of retribution for canada's role here. so, it is not working to canada's advantage. you also have to take into consideration the question of countries around the world, including canada and the u.s. want to build out 5g networks. the fact of the matter is a lot

of telecom companies say huawei is selling good equipment at a low price, why can't we buy it? there is all this political pressure from the u.s. against using huawei's equipment. emily: your team has so many stories about every single angle on this huawei story. a title of them is the u.s. measures of the world -- do not trust china on 5g. how will others receive this message? tom: they have got a way -- your desire to use huawei's lower-priced and arguably reliable equipment when it comes to 5g, and this assertion by the u.s. government that china can create -- huawei can create a backdoor into china. this represents a potential security threat for your country, your sensitive trade secrets, possibly your national security. that is a trade-off that a country has to make. do i want this equipment or do i want the potential for backdoor?

where we see the u.s. needing to be more forthcoming possibly is show more why huawei is a threat. yes, they are stealing ip allegedly. yes, they are violating u.s. trade sanctions, but are they a real threat to national security in terms of creating a backdoor for china? are they saying to china's government, come in. listen to these conversations between the u.s. and the allies. emily: still no evidence of that. i want to tie this back to apple earnings because huawei is a big competitor to apple in china. they are not seeing therir share fall like apple. they are in perhaps an advantageous position because apple has to outsource chips, whereas huawei makes its own. that is another part of huawei's business. how is their business going to fare amidst this onslaught to the 5g side? tom: it is an important part of

their business. we spent time with huawei in its labs and its factories in china. the message they are trying to send is we are more than just about telecom equipment, telecom networking gear. we are moving into new areas. we are moving into places like, you know, the internet of things. a.i. they are definitely trying to send the signal to the world that we have other businesses we can rely on. we also did this story that their chips are in a lot of security cameras around the world. there are other businesses, and they have a mobile phone business that is doing very well in china despite the slowdown. the slowdown is real and hurting many companies, not just apple. where huawei has been advantage is it prices its products at a lower price point, something apple fails to do. that really hurt apple in the

most recent quarter and we will see what apple starts to do with its pricing to get around that. another advantage for huawei is local companies, we have heard, are telling their employees buy huawei, buy local, do not buy the iphone. let's see if that is taking a toll and continues into 2019. emily: apple sales in china did fall off a cliff, lost almost $5 million compared to last year. we have been listening to tim cook speaking on the earnings call. let's take a listen about what he has to say about the strategy going forward. >> apple innovates like no other company on earth and we are not taking our foot off the gas. we will continue to invest in near-term headwinds like we always have and will emerge stronger as a result. emily: where are we going to see that innovation? people want to see a big snazzy, new product category which we

have not seen in a long time. does innovation look like something different at apple? tom: what apple has said, what they are emphasizing are things like their base. 1.4 million people have this device and apple has an entree into your life. they can push services, another area. growth in both of those also slowing. emily: do we call that innovation? tom: innovation happens in a lot of ways, emily. the cfo did talk on the call about new services that are coming down the pipe. the question is do you have the same margin and you have the same sales volume straight up as you do on hardware? services are harder. they account for a smaller percentage of overall sales. i wouldn't rule out the possibility of innovation in these areas. my question is how quickly can

they make up for the shortfalls you are seeing in the iphone sales that have accounted for so much of overall revenue for so long for apple? emily: tim cook has also said health will be one of apple's greatest contributions to mankind. continue to watch how that effort unfolds. tom giles, thank you for stopping by. still ahead, big tech earnings continued throughout the week. what to expect from facebook and tesla as they report coming up. this is bloomberg. ♪

emily: a big week for tech earnings continues tomorrow. facebook and tesla up next with their fourth quarter results alongside alibaba, qualcomm,

microsoft. will the tone be similar to apple? joining us to discuss -- will there be some similarities? >> yeah, it looks like a pretty mixed bag. we have pretty optimistic views on the big advertising giants, like google not until next week. facebook tomorrow. a big fourth quarter for e-commerce. cast your mind back to black friday and thinks giving weekend, some great numbers. that will bode well for amazon. specifically on facebook, it will be interesting quarter because they had a tough year, the stock down more than 20%. the company has come back of a lot of this quarter as people prepare to put that behind them. think about how the stock market emotionally reacts to some of these things, sometimes there is a overreaction. if you ask me what i think will happen, i think facebook will have a pretty good response as people say all that bad stuff

looks like it is behind us. emily: facebook analysts are expected something like $1 billion more profit in this quarter than in any quarter ever. i suppose the bigger question over the longer term, do you think users can emotionally get over some of the distrust of the company and will we see an impact on engagement? gerrit: you have this sort of user concern and the advertiser concern. the advertisers are the ones who decide whether or not facebook gets revenue and gross revenue, but they are obviously concerned about user numbers. the big concern last year was in its core markets -- united states, canada, europe -- the old blue app were not growing anywhere. people were not using it that much anymore and moving on to other apps by the company, but also instagram. when you talk to advertisers,

they say this was a big quarter for instagram. it was a quarter -- we know instagram has been growing very quickly but advertisers have really understood it at this point. people really are getting it and pouring money into it. instagram not big enough yet to uage userss growth and i think it will show good growth and the market will like that. emily: facebook not exposed to the china slowdown because they do not operate there, neither does google. neither really does amazon. what are you looking for in the amazon side of the story? gerrit: again, i will talk about fourth quarter is the most important quarter for amazon because of all the e-commerce that happens in those western societies. it was a big quarter. e-commerce is growing not just because the u.s. economy is growing, but because people are jumping into e-commerce in ways

they have been doing over the years, it is accelerating. all the retail bankruptcies in the news -- that is all good news for a stock like amazon. emily: tesla also coming up. as usual with tesla, there are the fervent bulls and fervent bears. gerrit: tesla had a pretty good third quarter. that was sort of a moment where all this concern about elon musk, what he has been doing on twitter, fighting with the fcc, his personal life bubbling into the public affairs of the company. then they posted a pretty good quarter in q3 and that seemed to quiet the critics for a while. the company has been telegraphing this quarter will not be as good as q3. you have seen the stock come down 10% this month. that might be baked in already, but we are always looking for commentary on what the future is going to look like. for tesla, they need to keep

raising money, satisfy their bondholders. whether that is going to be more debt sale or selling more stock, we will have to see. but it is a good position to be. the company needs money to keep funding. that is business and it is not shrinking. emily: gerrit, thanks so much for weighing in. to recap the top story of the hour, apple earnings. iphone sales fell 15%, but other businesses grew over the holiday quarter. wearables, home accessories jumped 33%. on the earnings call, the cfo gave the order of popularity for the latest iphone. max,the iphone 10 r, 10s 10s -- popularity in that order. that does it for bloomberg technology. wednesday, we are covering earnings season all over again with alibaba, facebook and tesla on tap.

we are live streaming on twitter. follow our breaking news network tic-toc. this is bloomberg. ♪

haidi: good morning. australian markets have just open for trade. shery: good du evening from new york. i'm shery ahn. sophie: welcome to daybreak asia. ♪ the top stories this wednesday -- apple first quarter reserves largely unfounded. revenue met expectations but sales slumped. investors weigh stability which could be the new watchword.