♪ chang and thisy is the best of bloomberg technology will bring you top interviews from the week. apple, amazon, tesla, facebook, it has been a big tech week for tech results. to sheryl sandberg about how the company is trying to move past its scandals and controversies. and intel claims a permanent ceo after months of searching.

why the chipmaker hired from within and will it be the right call in the long-term? first to our top story. facebook goes on the offense. they reported revenues of blowing passed analyst expectations. if the recent deluge of scandals is hurting anything, it is not the numbers. but they still have a tough road ahead to when that trust. i spoke to sheryl sandberg on monday after posting results. we began the conversation folk sing -- focusing on performance. >> we had a strong quarter, the end to an important, challenging year. haveu look at it, we now 2.7 billion people using at least one of our service. that is facebook, instagram, whatsapp, messenger. importantly, facebook is growing. we have 2.3 billion users on a monthly basis with 66% coming

back every day. one of the questions people have about us right now is that we are making such big investments in safety and security. we have so much work to do to protect people on platforms. can we do that while growing the community and business? we still have a lot of hard work to do, but i think we are making progress in. emily: there was an incident that revealed facebook had a tool that was collecting data from users in exchange for payment. apple has shut down your internal apps and our sources are telling us that employees are panicking how are you triaging this? >> we want to be clear about what this was. despite the early reports, there was nothing secret about it. completely opt in, participants knew they were in.

the great majority were adults and people were compensated for being part of market research. emily: even apple has punished you. >> well, we took it off the app store. it was violating their terms and that is something we never wants to do and we are working with them on employee certificates, but it has been a productive day at facebook. emily: that said, for a lot of people, this is sort of a not again moment. -- so whato you say do you say about why people should trust you? >> what matters is if people know how their information is being used. study newusing the heather information was being used. but you are right, it has been a challenging time for facebook. i think one of the things we shop -- size how much we are investing in security.

at what at to look company cares about, look at where it spends money. profitability as we want to take the hard steps to protect people in bc is doing that. it happens with the midterms and around the world. increasing the distribution of fake news. these are hard and ongoing problems, but we are determined to do the hard work. emily: the ftc has been investigating your privacy practices and we reported they are preparing for a record fine. >> we are working closely with the ftc and regulators around the world. we're continuing to make investments in safety and security on our earnings call. mark said it was a top priority for the company, and to continue, we have a lot of work to do. we are making good progress in a lot of areas and will continue to work hard. we're also continuing to build great products.

this quarter shows that people are continuing to use our products around the world and we are going to continue to make important investments. we are making massive investments in and renewable energy. i next year, we will be 100% renewable in all of our operation and continue to make investments across the board. broadly, it has said that revenue is expected to slow down and make changes. they said you welcome regulation. how do you convince investors that facebook will also continue to grow rapidly. public. our numbers are we are still a fast-growing company by any stretch. we're going to continue to make harm,ments to prevent build great products, and invest in the future. our focus is continuing to do

all of that. i think people wonder to do it all at once. it shows if we can and will. emily: mark has said he wants to decentralize power. we know you are working on merging the backend of messenger, whatsapp, and instagram. there is a concern that privacy will be compromised in the process. why do that? >> we know what people want from messaging. they want messaging that a simple, reliable, and private. working on ways to make it easier to find your friends and family throughout the that, webut in all of are going to make very, very careful decisions with people's privacy. these early conversations with a lot of hard work to do. emily: my conversation with facebook coo sheryl sandberg. swan as itsmed bob

seventh ceo, filling the most prominent role in the semi conductor industry at a time when opponents are challenging market dominance this ends a monthlong search where swan claimed he did not want the top job. >> when i spoke to him about this earlier, he says, well, i love my job and wants to make intel a better place. the more i get the job, the more i took over, talking to customers, dealing with those interactions. the more i understood about how pervasive we are and the more that became interesting. when the board finally said would you do it, i could not refuse. >> the market was initially mixed about this. shares fell and they managed to retrace loss. why the disappointment? were hopes they would get

a more female ceo, or maybe a more external candidate. >> you are exactly right. when the predisaster was forced out, people immediately thought that bob swan would be a good interim candidate. and bobs dragged on said more and more he did not want to do this, people started to look in other directions. then, when we go back after seven months to the person we thought was going to get it, that it is a sense of what went wrong in the interim and there was a little disappointment. >> now the focus for bob swan is the take on some of the competition. thanks to you, we have got some great quotes can it discussing how they will be doubling down on services for customers. >> we believe we need to to provide real differentiated services for our

customers, not just for great financial results, but to increase the gap between us and our competitors. effectively, to bring technology to life by having 10 nanometers systems on shelves in a holiday season of 2019. >> just how hard is the competitive landscape for intel? >> that is a good question. the look of their numbers, you would think, what is the problem? but looking at what is happening behind the scenes with the ,anufacturing technology something intel has been leading for decades, it is not looking quite as good. intel is years late on the latest manufacturing notes, something which other companies appear to have gotten to first, over the next 12-18 months, it will face more competition than it has for a very long time. >> which company is the one to

watch when it comes these new innovations? the obvious candidate would be amd. they have redirected fortunes and become a credible supplier again. really, what is potentially more damaging our customers such as amazon, microsoft, they are looking at their own chips. their own designs for these data centers, and that really has got to be a huge threat. they are outsourcing their production to tsmc, arguably leading in terms of manufacturing. emily: that was bloomberg's ian king. up next, check season is in full swing. we discussed amazon's crucial holiday season. and if you like bloomberg, check us out on the radio. this is bloomberg. ♪

emily: amazon reported fourth-quarter results giving insight into sales over the holiday. and analysts spoke with caroline hyde to get their reaction. amazon has shown great growth in the fourth quarter. as you mentioned, the advertising business is skyrocketing. we are seeing the growth of sponsored clicks growing this year to 10%. you can imagine that business doubling to a $7 billion a year -- quarter business. we've also seen strong transaction, they're still the dominant e-commerce player and we expect that to continue. >> you have got a buy rating.

do these numbers substantiate that? >> absolutely. this fourth quarter is a continuation of the trend for the second and third quarter that you have to get used to the more profitable amazon. not only advertising, but third-party unit sales, 52%, versus 51%. bythe items sold by amazon third parties utilizing its platform, very profitable. growth wasevenue very similar between the third and fourth quarter. you are seeing more profit in the growth engine of amazon being not only cloud computing, but advertising and third-party sales. >> to that end, they are profitable and have more cash. where do you think they put this cash to work in the best way? double down?y --

they are clearly still outperforming in e-commerce. historically, when you think of amazon, you think of investment spending. as it pertains to using the cash, we expect them to continue their high pace of investment ending. in addition to cloud computing, it looks like they may do more with physical stores. they talked about expanding their physical footprint. we still think that amazon could do gas stations. to do is totend expand their delivery network by having more physical whole foods stores. there are continuing to invest in a proprietary content. they are using it in a lot of their growth drivers. >> an interesting element is that we are perhaps seeing a plateau of growth with prime subscribers. does this worry you in any way?

is it time to focus on international growth? >> that is a great point. they have to focus on international growth. they basically invented e-commerce in the united states. when they have grown international it, they have had to grow into markets with entrenched competitors. but another area they have to focus on is there higher and by the label products. and -- end private label products. both internationally and the u.s.. >> there is plenty of competition. the fart throw aside factors and clear competitors who have made their business to dominate in the luxurious side of apparel. as your shop shows, a lot of the spending is a lot less than the competitors. we have seen a numerous examples.

we saw spikes on walmart.com where the average price of a product sold went from $39 to $53. but if you're talking about where to invest the cash, oma's all of it is at that higher spend level. amazon has naturally got to go in that direction. we have pretty much dominated the cheap goods market. >> i want to go to the other part of business that drives growth. growth is a phenomenal. >> are we expecting to see that continue? and really, how are they changing up the model? how are they changing of the competition when we have microsoft making inroads and cloud spending dialing back? >> the story when it pertains to cloud computing with their aws effort is the pace of growth should decelerate as it becomes

a bigger effort to the company. as far as total revenue generated. the good news for amazon, and what really drove the share price was that its fastest growing business was also its most profitable business as it pertains to cloud computing. the good news to your point is that they have been able to sustain this growth despite significant advancements. aws hethey do you think comes compared to the rest of the business? >> when you compare relative growth rates, 10 years and now could be 25% of sales. when you look at it on that basis, that is why you believe amazon can have a consolidated margin in the 21% range.

see morenk we will margin expansion in amazon over the next 10 years driven by cloud computing efforts as well as advertising and third-party unit sales. coming up, the u.s. ramps up its fight with huawei as trade talks resume. how will it impact a potential deal? and later, iphone sales slowdown with a massive revenue drop. tim cook is still bullish on goods and services. we bring you all of the highlights from apple fourth-quarter results. this is bloomberg. ♪

emily: the u.s. has had china's largest tech company with a string of charges ranging from ip theft to fraud. the indictments, ahead of crucial new trade talks in washington. stating theyd by

denied that it or any subsidiaries committed any of the violations of u.s. law set forth in the indictments, is not aware of any wrongdoing, and is -- and believes they will ultimately reached the same conclusion. huawei and their affiliates are set to appear in the u.s. to face charges that the company engage in a scheme to steal trade secrets from t-mobile. our global executive editor joined us tuesday to discuss. >> the timing is everything, right? getting these charges to come down just as trade negotiations heat up. there are two schools of thought, what is it gives us leverage. it gives us some kind of negotiating chip. there is another school of thought, and we spoke on bloomberg tv yesterday to a former u.s. trade official who

said that this undermines the u.s. case. this has the potential to show china that we are not serious about either side, either the trade issue for the case against huawei, because why would we use one as a bargaining chip against the other? in some ways, it undermines our case to show that we are willing to make concessions on this side to get what we want here. well, then how serious were you in the first place if you are going to use it as a negotiating chip? it is a different school of thought, so it could go either way as far as u.s.-china is concerned. emily: the u.s. has formally requested -- >> extradition, that's right. emily: to the united states. what is the process? days to honor30 the request. it is an interesting situation canada is left in. canada is paying a high price to

be a u.s. ally here they have got canadian nationals arrested in china as a result of retribution for canada's role here. it is not working to canada's advantage. you have also got to take into consideration this question of countries around the world, including canada, who want to build out five g networks. the fact of the matter is a lot of telecom companies say huawei is selling equipment at a low price. there is all of this political pressure from the u.s. against using huawei's equipment. emily: your team has so many stories out on every single angle, the title of one is "u.s. message to the world: don't trust china on 5g." how will others receive this message? >> their desire to use while wei's low-priced and

reliable equipment on 5g and is -- and thehat huawei assertion that they can create a backdoor. your trade secrets, your national security. that is the trade-off a country has to make. do i want this equipment, or do i want the potential for a backdoor? where we see the u.s. needing to be more forthcoming is to show more of why qualified -- huawei is a threat. yes, they are stealing ip allegedly violating trade sanctions, but are they saying to china's government come on in and listen to these conversations. that is an open question. emily: still don't have any evidence of that. i want to tie this back to apple, one of apples -- huawei

is one of their big competitors. they are in an interesting and perhaps advantageous position. apple has to outsource to intel wei makes whereas hua its own chips. how are they going to fare midst of this onslaught to the 5g side? >> it is an important part of the business. huawei inime with their labs and factories in china. to message they are trying send is that we are more than just about telecom equipment and networking. ,e're moving into new areas places like the internet of things. ai. they're are definitely trying to send a signal to the world that we have other businesses we can rely on. we also did a story about the

fact that their chips are in a lot of security. they are everywhere. said, a have, as he mobile phone business doing very well in china despite the slowdown. the slowdown is real and is hurting many companies. not just apple. where apple has an advantage if they price their products at a lower price point, something apple failed to do. most recente in the quarter and we will see what they start to do to get around that. wei isr advantage for hua that local companies are telling employees to buy local, not the iphone. let's see if that takes a toll and if that continues into 2019. emily: that was bloomberg's tom giles. up next, we are more than the iphone, apple's message to investors. where tim cook is focusing next.

and we are live shooting on twitter and follow our breaking network tictoc on twitter. this is bloomberg. ♪

♪ "the bestcome back to of bloomberg technology." apple posted its first earnings report since tim cook informed investors they were cutting their forecast. revenue was slightly higher than expected, but the number we were waiting for his china revenue, a steep drop-off in sales in greater china. apple brought almost $5 billion less revenue in china than almost a year earlier. >> we have seen a couple of

macro indicators collapsing over the last two months of the quarter, november and december. all these were done dramatically. apple was up 16% into calendar q3 last year. it went from going up to down 17% year on year. there was a dramatic lapse in china and it is not just apple. we are seeing potentially a collapse in consumer confidence. .mily: the question is why is it because of these taxes, broader sentiment across the country? does it have to do with the trade war? >> we continue to think 80% of this is apple specific to a foundcedxr our phone -- -- also from a technology perspective, you have the camera technology. chinese consumers which

represent 20% of all the upgrades for iphones, they looked at this phone and walked away. we knew china was going to be weak, but it fell off a cliff. the vastu are saying majority of this $5 billion is due to the mispricing of the xr. what about the other phones? >> xr is focused on china. if you look at the pricing of with thinkcombined 80% apple specific, 20% macro, huawei\-- back lash and headwinds. signal,a huge iphone given 20% of all iphone operators are in china.

that is why in this call coming up, it will be key to how this turns around as well as how cook and apple are looking at it. emily: we know there are competing's mark phone maker -- competing smartphone makers to make cheaper phones than the iphone. what do you attribute to this? >> just to address the last comment, the entire sector in china so about the same -- fell about the same rate that apple. samsung reported huge losses in market share. some of the chinese players are rising, but the overall market is suffering. it is not just apple. emily: why are some rising but not apple? >> apple has the premium segment so you would imagine it would be suffering more. 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 sales in other regions, we saw u.s. sales overall slightly up year-over-year. sales in europe slightly down. where is the growth going to come from? -- fundamentally, you do not need to see mega growth. you have a plus or minus 5% type of growth give or take. you just want to see a stable install base. -- million iphones are coming up for upgrade. down, install base ticks that is fundamental to the services story. reboundt to see a china , but the only way you see that is if they cut prices more with xr.

that will be the focus on the call because otherwise it will be a lost iphone cycle until september. prices and take their merits intimate pricing perspective? emily: tim cook is saying the macro economic conditions were much worse than the company initially thought they would be. they did not break out unit sales for the first time, but they gave us revenue for each product category, $52 billion for the iphone, 7.3 billion for wearables and accessories. 10 billion for services, generally in line with the way pi normally looks. what is the significance of these numbers not having those unit sales? >> the install base, there was an update given in the investor letter and it is up over 100

million. it is 1.4 billion install dates. emily: 900 million are iphones. >> that is an estimate. the breakdown by revenue by category, we have the ipad up 17%. we have the mac up 19%. the wearables segment is up 50%. excluding the iphone, the business is growing up 19%, which is still a smaller portion than the iphone but that is growing well. overall, this is a healthy ecosystem with a healthy number of users and a growing number of users. demisereports of apple's are greatly exaggerated? >> they have been for many years. emily: would you agree? >> i would disagree with that comment.

in the fact that right now, if you look at this, the story has changed and the focus is on the installed base side. , it isu look at services key to what will happen in the next 12 to 18 months. china is a linchpin of those customers do not operate. as someone who has been long-term bolo on apple and continues to be, they are entering a different white knuckle period than before. that is why investor reaction has been so negative. what you want to see going the pricing -- will lose, and the services business will feel more comfortable. the biggest number that investors are focused on is the services gross margin above 60%. ,hat is the line in the sand

why the stock is up, the some of the parts valuation for the services vision -- division. margins are up on services so at the beginning of the quarter when we had a greater story for 58%., they were up now they are up 64%. the story on margins is not a bad one, and i think we will see increases going forward. the key question on install basis, 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. , butould keep an eye on it i'm not sure that loyalty is going in any other direction. roger lynch, ceo of

pandora, will step down and exit the company after shareholders xm.oved a deal for sirius the cfo will also exit the company. jim meyer will oversee the newly mind company. tesla's fourth-quarter results are in and it is a mess for earnings. -- miss for earnings. logitech reported strong fourth-quarter results. what to expect this year as it takes on gaming. this is bloomberg. ♪

♪ emily: tesla came out with fourth-quarter earnings that fell below estimates.

they announced they will restructure to cut annual cost by $300 million. we were joined by tasha keeney hall.own a hall -- dana >> elon musk singled to people weregnaled to people they expecting a smaller profit in the fourth quarter than the third-quarter. they missed on eps but still have cash to pay off their debt. shares have bounced around a little bit better fairly flat. emily: the big question is sustainability. tesla had, despite a lot of challenges, a record year. withare you expecting regard to production and delivery and demand? >> we think the model three comes through in surprising ways. it is a top-selling premium

sedan in the u.s. for the second two quarters. demand came and strong and they are starting deliveries in china and europe. we can expect a similarly positive picture. in terms of production, there is too much focus on production and delivery figures for a company that is really ramping up like tesla. we are looking to the future with tesla as an autonomous production service company. we are looking to the long-term. we think tesla could launch an autonomous service that is the most important market opportunity. emily: elon musk has focused a lot on production. he said the model three would take tesla through production hell. we know the company will not necessarily keep up the production levels of last year.

they laid off 7% of the workforce trying to restructure. how will that redistribute workflow? dana: the shareholder letters said they are hoping to reach a sustained reduction rate of 7000 model threes a week by the end of 2019. youugust 2017, he said should have no concerns that we will reach 10,000 a week. they are walking back some original targets and trying to manage demand. this is a company that builds to order. i try not to carry a lot of inventory and with the tax , they didting down not want to build a lot of cars and have them sitting around. it is smart with they are trying to do. emily: tesla has broken ground on the factory in china. how optimistic are you about their future in china, in the

midst of the trade tensions? tasha: we have seen a lot of positive activity, particularly in the auto space. we saw the relaxation of the 50/50 joint enter role, allowing ,echnique -- joint venture rule allowing tesla to enter the market without a partner. that rule relaxation seems uniquely beneficial to tesla. musk has said he has good talks think thatals and we is the largest market for autonomous driving. it is strategic for tesla and we are excited to see what goes on. emily: we have not gotten an update on autopilot in a while. what are we helping to hear on the call but starts in about 15 minutes? dana: there was not much in the shareholder letter. on the call, i would imagine people will be asking about it, when will tesla demonstrate this

autonomous cross-country drive? i am not sure people are expecting the whole team on the call. tesla has fallen behind competitors like waymo when it comes to getting to market with an offering consumers feel comfortable in. , the model three tesla is far ahead in terms of electric cars, but you have competitors coming to market. sales will likely be small this year but will grow next year. how much does tesla have to worry about the competition, whether it is dowdy or porsche question -- audi or porsche? tesla's navigate on autopilot feature shows it is competing with companies like waymo. they are testing on suburban roads as opposed -- waymo is

testing on suburban roads as opposed to tesla who started mostly on highways. getting on and off the highway is a problem many teens have had trouble with. heard tesla will account for 50% of global battery production by the end of this year. the competition gets the scale and that takes years. tesla has that scale and they have a technology advantage. we just heard the north american ceo of toyota say tesla is affecting previous sales and creating a new category of vehicle, technology griffin -- driven car. things that competitors just do not have. been ait is obviously tough year for tesla as well. musk was fined by the sec and they have gone on independent directors. larry ellison has joined the

board. elon musk has been fairly quiet. is there a sense the governance and leadership issues have stabilized? dana: 2018 was such a dramatic year between the autopilot fatality, sec investigation, go private did. tesla was in the news nonstop and everybody at the executive level is ready to focus on execution and stay out of the limelight if possible. the shareholder letter was remarkable in that it was a bit conservative in terms of guidance. there were not any pie in the sky addictions. -- predictions. it was a conservative letter and that will be interesting to see what the tenor of the call is. emily: tasha keeney and dana hu ll. dropbox acquired hello sign.

hello sign isn't e-signature company that counts lyft among its customers. dropbox says hello sign will continue to operate independently. coming up, hardware company logitech is on track for growth in 2019 and crediting one moving industry. we talk with the ceo. this is bloomberg. ♪

emily: logitech is crediting much of its recent success to the rise of -- a 23% jump in the

gaming business. the company attempted to diversify its offerings as pc sales decline while mobile and clouds services gaining popularity. the ceo joined us. bracken: i have three kids and all three were gamers. they were right and the strike zone. my kids said, logitech is a great company that their products are not as good as they used to be so when i joined i said, where is the gaming group? it was four people. emily: how big is it now? bracken: i would not hazard a guess in public, but well in the hundreds. emily: you still make the keyboards and mice, and now you are making more equipment for games. bracken: right. way, the core a keyboardsf mice and

and headsets is the same thing you see in gaming but it is much higher spec. it is increasingly wireless, superhigh quality sensors, and designed for gamers. we also make things for console gaming like headsets. we are getting into the controller game. we are in simulation where you feel like you are driving a real race car or if you are adventurous, you can drive a simulator for farming. emily: does the health of the company depends on the health of the gaming industry? is that a concern given china's crackdown and the health of the global economy? bracken: we are increasing our portfolio all the time. we are more than just gaming. gaming is on a secular growth curve that will go on forever. it will be the biggest spectator sport within the next 20 years.

we are very big in video collaboration and conferencing. for roomsnferencing of all sizes, and our pc purple business a strong. emily: what is the outlook for e-sports? bracken: e-sports is fantastic. for most people under the age of 25, almost everybody is playing or watching or both. if you are over the age of 35 or 40, you are like, what is this? it is not a craze. they are playing more games longer and will grow up and their kids will play. emily: how is your strategy being impacted by the trade war and the concerns about the chinese economy? bracken: the u.s. does not touch our strategy. it touches the tactics and operations and the way we bring things to market, so we do our own manufacturing. we manage other people's factories in china.

we are used to moving things in and out of our own factories so we are moving things in factories, some outside of china , and lowering our costs overall . if we have to raise prices, we well. emily: what is the volume moving outside china? bracken: it is relatively minimal. business -- it is small. emily: is that a concern for the business if you need to raise prices? bracken: we are generally the biggest player in most of our categories and everyone we are competing with is in the same boat. emily: do the trade tensions have you thinking differently about acquisitions and m&a? bracken: no, it doesn't for us at all. i think it has probably dammed the overall -- dimmed the overall market.

we are still thinking about it and looking at it. emily: some of the consumer companies have been getting into consumer facing -- like apple, amazon, and google. is that a threat to your business? bracken: our general strategy is we try to go into things that are not important strategically to them. if they are in them, they are in them, but they would like us to finish off. it is not a threat but it shapes the direction we go in. emily: logitech ceo bracken darrell. that does this -- that does it for this edition of "best of bloomberg technology." we are live streaming on twitter. check us out at tech knowledge he -- technology. this is bloomberg. ♪ this isn't just any moving day.

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scarlet: i am scarlet fu. this is bloomberg "etf iq" where we focus on the access risks and , rewards offered by exchange traded funds. ♪ scarlet: finding your footing. with signs the global economy is slowing, we examined the 2019 bull case for emerging markets and japan as well as u.s. small-cap. quality first -- holly framsted heads up ishares u.s. factory etf and joins us to explain why the quality factor was custom-made for this late cycle equity rally. and pick of the litter.