the technology that runs the coolest gadgets from ipads to digital cameras isn't chinese or taiwanese. it's british. arm holdings president tudor brown, my guest this week. and later, banks insist they're ready to lend, so where are all the loans? frank talk about the economy from wells fargo's erik davidson with "financial times" reporter richard waters and maggie shiels of the bbc. this week on "press: here."

good morning, everyone. i'm scott mcgrew. it almost sounds like a science fiction thriller. nearly every device in your house, it turns out, runs on an electronic brain designed by one firm that almost no one's ever heard of. of course, if you're in high-tech, you're probably aware of arm, a strange name for a chip design company based in cambridge, england. now, arm doesn't build chips. it just designs them and then licenses the design to marvell in silicon valley, texas instruments in texas, samsung in korea. a staggering 20 billion arm chips have been manufactured. you can find them in modern digital television sets, digital cameras, and the nintendo handheld game player. they're in most wi-fi access points, most gps devices, and practically every single cell phone manufactured, including the super hot android.

our arm chips in ipads and iphones? well, apple says the chip driving its trendy technology is home built, the apple a4. but chip analysts who stripped the device apart say there's an awful lot of arm technology in there. and apple is one of arm's investors. in fact, there's been a lot of talk of apple buying the company outright. tudor brown is president of arm holdings. he's also one of its founders, making him one of the most influential men not just in silicon valley but in silicon. thank you for being with us this morning. >> thank you. >> maggie shiels of the bbc, richard waters of the "financial times." and as the audience is about to find out, all of you are british. it was just one of those sort of weird coincidences. can you, tudor, so people understand what arm is, i think they understand what intel is. it's a chip company. they make chips. >> yeah. >> arm is different.

is there an analogy in some other industry that would help us understand what it is, arm's business model? >> well, what we call an intellectual property company. and what that means is that we design things and then typically license them. it does happen elsewhere in the electronics industry. there are other companies that do what we do. but we're the biggest in that sector. so best known there. i guess in other fields you see it in pharmaceuticals quite a lot. the dolby name that licensed all that -- the tape production technology is a good example of an i.p. company -- >> i'm a stereo company, i want the best, and so i buy the dolby idea and i build it myself -- >> exactly that. and that's the sort of model behind it all if you like. >> is it -- go ahead. >> i was going to say, so are you inside the ipad or not? >> i don't think we need to discuss exactly what we're in. but the fact is we're in almost all of these new gadgets. six -- 5 billion last year products. and so it gets everywhere,

really. >> there was a report out this week from gartner talking about the number of smartphones that have sold and how many more are going to sell. you've really got a lock on that market, but you're facing competition from intel. >> well, of course. the fact is that these new generation of phones have more and more arm technology in them. and so they're particularly interesting. a typical smartphone will have four or five arm chips inside it, actually. and in fact, if you look at the total 1.2 billion phones that are made each year, there's an average of 2 1/2 arm chips in every single phone. >> and let me, just so everyone heard that, every single phone. your market penetration in smartphones is 90 -- >> well, we could never say it's 100% because you could always come up with something where it's not true. but it's pretty high. it's clearly over 90%. clearly. >> every ceo in the world says we can't say 100% -- >> it's not 100%. there are other technologies -- >> but people would be happy with 50%. that would be a tremendous market share. >> it's high.

>> you've been helped by competition that's rather weak. intel, for instance, has had a number of goes at this market. they just haven't really come up with anything that's truly competitive. next year is going to be different, though, isn't it? we're hearing about an oak trail processor and -- >> intel have been starting from a very different place. they've been coming from a much higher performance, much larger technology, which hasn't been appropriate for this much more mobile battery-powered technology. so they've been working to reduce that. we've been pushing our own technology up in performance. so there's an inevitable clash, if you like, now with these two different technologies. and that will continue, and we'll continue to sort of barter it out, if you will, in that sense. but it's not really about the technology, i don't think. it's actually much more about the business model. because you see, the thing about arm's business is that we have this product that we license to all of these different companies. so if you're a cell phone manufacturer and you want to use arm technology, you have a choice of a huge number of companies, as you mentioned. you mentioned some of them there on the clip. there are many more. there are over 200 companies

who've licensed this technology. as a cell phone manufacturer you can choose who you want as your supplier. whereas with intel you'd have to go into tell. >> intel's been obviously a fantastic business model on the pc. and when they operate at scale they brought down their unit cost to a level that's made pc the dominant computing platform. so why can't they do it? late next year they're going to go down to 22 nanometers and they're really shrinking their size in a way very few people can compete with. >> well, no, other people will get there too. but what intel call cheap, we've heard of the tiny atom. the atom is enormous by the standards of arm chips. arms a arm chips are much, much smaller and cheaper. intel pcs have been selling $1,000 in the servers. arm chips are selling in the $10 to $20 range. there's a big gap in this -- >> so are you blowing off the competition? it sounds like you slightly are. >> i don't think it's a case of blowing it off. i think it's a case of being

appropriate for what happens right now. and in my world, in my mind the world is changing very rapidly. this is no longer the pc world, dominated by one or two companies. it's a completely different set of supply chains, a completely different set of people building these things. and i think you need a different business model for, that just to cater to the high volumes. >> isn't that extraordinary? i think if you had predicted ten years ago, listen, we are a chip company, we've got to get faster, we've got to get better, we've got to get more powerful, and it turns out the future is in low power. not low intelligence, low speed, but the amount of power that chip draws -- >> absolutely. >> because desktop computers that are fast, nobody wants them anymore. >> and if you start looking at things like tvs and cars, you simply can't afford the heat that these intel products give out. so low power isn't just about battery-powered devices we carry around in our pockets. it's about almost every aspect of technology. ing and of course there's the whole green agenda as well. and so that's, you know, a whole

area where, again, people are going to wake up to the fact that you need newer technology to be more competitive. >> and talking about those other consumer devices, i was at the tv live conference this week, and one of the big discussions was about internet tv, smart televisions, televisions doing more than they've ever done before. and how lucrative a market do you see that as being? because people want more functionality. >> there's no question in our minds that tvs, as an example of a typical home appliance, have to be connected to the internet going forward. so i'm sure in our vision your refrigerator and your music system and everything else. we're moving into this sort of cloud-based world. and i have friends who can't -- who have kids, and you're not going to like this, maggie, but they have kids who can't cope with the concept of broadcast tv. >> i don't much like that either. >> they can't understand why they can't have video on demand. and these are sort of 5-year-old kids. and so that's the way it's moving. and clearly, therefore, you're

going to have to move to a much more internet-based type of -- i don't think broadcast's over, by the way. it's okay. >> i still have a future? >> you have a future. but i think moving forward there's going to be a lot more expectation on things on demand. >> and you are in these google tvs and the -- i mean, google tv is a standard, is a platform. >> yeah. >> so you may or may not be in a specific brand. >> with your market share you probably are. >> the first version of google tv we're not in, it actually. >> that's intel. >> that's intel. >> but there are going to be lots of manufacturers that are -- >> if you think of google tv as a sort of -- >> standard. >> standard or a group name for the type of internet connected tv, things like iptv or hybrid broadband tv, all these different names, connected tv from yahoo and whatever, yes, we're going to be in a lot of those tv sets. >> what -- go ahead. >> i was going to say clearly it's the tablet that's caught everyone's imagination this year and your stock price has taken off on the back of that.

next year we're all expecting this to turn into a mass market. is microsoft really going to play on tablets eventually? and if so, is that -- are we going to see a sort of intel tablet? >> possibly. the thing about the tablet mark, it's fairly new. and we're being very cautious about making bold statements about it. because if you look back three years or so, this netbook phenomenon, people making great claims about it, it's kind of fizzled out. it's not been a huge sustainable growth market. >> your company thought netbooks might be -- >> we saw net boorkz as the sort of natural progression from the pc, a more mobile, cheaper, lighter pc. and the reality is people wanted a pc. however, when you start looking at tablets, it's a bit different. the use idiom, or whatever, is different, and when you start doing things with touch-screens and pointing with your fingers, which is actually -- you know, i'm doing it now. we're kind of used to moving our hands around. that's the way we like to operate things. and once you started doing that, it's kind of a bit of anathema

to go back to this funny mouse thing and accurately find the point where you can hit a landing point. you're kind of used to doing it now if you got used to touch-screens. and i think that's the way -- >> let me ask the last question, and that is do you think tablets are the big one? or is it television, or is it -- >> it's all of these. you see -- >> well, pick one. >> pick a big bed. >> tv's a guarantee. it's a stable market. it's obvious to see that tvs are going to move into a more connected thing. people want more portable computing. and they're not computers. you know, you have your ipad or whatever, and you pick it up, it's your encyclopedia, it's your book of maps, it's your video machine. it's all of these things in one. and i think as we see more of these tablets coming out they're going to be a huge market, no question. >> tudor brown is the president of arm holdings. and we appreciate you being here with us this morning. up next, a talk with one of wells fargo's top thinkers about the economy, currency, politics, and banking. "press: here" will be right back.

so, we book a flight to hawaii using our points from chase sapphire. last minute... on christmas. and sitting next to us, chevy chase. and we really hit it off. we play golf, and then the luau. he's like da vinci with ice. and after, we help hang christmas decorations. wait, wait, wait. you flew last minute... on christmas... with points from chase sapphire? yeah. amazing. believe it. with points from chase sapphire, you can book airline tickets with no blackout dates or restrictions.

welcome back to "press: here." as a business reporter i sometimes worry people are tired of hearing how bad the economy is, that people only want to hear the good parts. take this news item, for instance. last weekend $25 million worth of homes in san francisco's east bay were snapped up in a matter of hours. that's the good news. unless you hear the rest of the story. all of the homes sold were sold at foreclosure auctions. a house in oakland, for

instance, once purchased at $308,000 sold for $65,000. so is it good news that homes are selling or bad news the prices are so low? >> the housing situation just makes it worse. >> all over the media you see confusion at worst or guarded optimism at best. politicians and pundits pick out small details. some company hiring 100 people becomes a major news story. yet millions upon millions are still out of work. recently, the federal reserve announced banks had once again eased restrictions on loans to small businesses. but demand for loans has fallen. the fed survey finding most banks don't expect lending to return to normal for several years to come. so where is the economy, and who's telling the truth? erik davidson is senior vice president of wells fargo bank. he has written several books. he's a frequent contributor to the "wall street journal."

and wells fargo, of course, one of the four big banks in the united states. the other three, bank of america, jpmorganchase, and citigroup. joined by maggie shiels of the bbc, richard waters of the "financial times." so that's my fear, that every time i go on the news and talk about the deficit or talk about -- people say, oh, home price, did you see, they're up 2%. down 30% from the highs. where are we in your estimation in the economy? >> yeah, the real challenge that people have is as emotional beings we're sort of binary. either we're trapped in airration 58 exuberance or trapped in an irrational despondency. and your role in the media is just to reflect that. so how are things going? they're getting better. there are some bumpy roads in the near term. medium term things are looking well. longer term there may be some pipers to pay. >> people actually have to start feeling better. i mean, that's the -- >> put it to work. >> put it to work. >> you're exactly right.

and all this talk about housing, obviously, and that's been traumatic. it's been the worst economic development we've seen in our lifetime. but really the key is jobs because when that turns around that's what's going to bring back the optimism. >> for someone who didn't major in economy or have his master's degree in economy, that's the chicken and egg. well, if we had housing people felt confident about, we'd probably have job growth, and if we had job growth we'd probably have some house sales. >> yeah, you think it really starts on the jobs front because that's what drives it. the sad thing right now, we're around 10% unemployment, even higher in california. and that doesn't just affect the people that are unemployed, it impacts everybody else because everybody is concerned about being part of that 10%. so that's the real challenge we face in the economy. once that gets going, then that momentum begins to build for the confidence, and that obviously leads to housing sector but it leads to other parts of the economy as well. >> you say that jobs are the

key. so obviously for companies they're kind of scared to make that big leap and start hiring and investing because they're uncertain about the economy even though the markets are going through the roof at the moment, very volatile. so how do people like you, who've got money, encourage businesses to go forward and to make these investments in people so these people can then start making investments in other parts of the economy? >> part of it is whether you're an individual or a company, we're all being trapped in this cycle of fear, right? individual investors are rushing to the sidelines and putting money -- socking money away. companies are as well. and getting over that fear. right now the average money market accounts yields 1/8 of 1%. at that rate you're on line to double your money in 553 years. so whether you're an individual investor or a company, unfortunately so many of us are choosing a cure that's worse than the disease. now, what we went through is awful -- >> sorry, but it's a very

rational response when what we're being told is -- and actually, i think the media has done a good job in educating everybody. in fact, the problem is we've educated them too much is that people understand that we have a debt problem. too much debt. and so not spending but saving, paying down debt, is a very, very rational response to that. >> oh, yes. >> becoming a vicious cycle. >> and from an investment perspective, really it's the contrarians in the end that will always win. so when the rest of the world is quite prudently paring down debt and restoring their balance sheets, probably this is the time when the real clever investors and clever companies are actually looking to possibly lever up these historically low interest rates. >> what about companies like apple and google, for example? here we are in the heart of silicon valley. and yes, they're hiring, but we read stories about apple sitting on a $50 billion cash mountain, google on something like $30 billion cash mountain. that money is stuck doing

nothing, and it's not helping the economy, is it? >> oh, you're exactly -- it's the same issue that individual investors have when they receive their low interest rates. so eventually, when that courage comes back, you know, for companies that are already starting to see it, particularly not just here in the united states but globally there are so many exciting things going on, that eventually that's starting to come off the sideline, and that's -- >> but it doesn't feel like there's exciting things going on. you talk to real people, and they are scared. and you know, we're coming up to the christmas season and already hearing reports that retailers, if they want things to get moving off the shelf, are going to have to slash prices. and we're in november. >> you're right. and the fear is palpable. and that's what's holding people back. i mean, you know, is the stock market still off 20% from its highs? absolutely. but is it up 87% fritz lows? the typical -- >> that goes back to my original question is there's enough confusing data. let me answer one of your questions earlier. how do you get businesses to lend, or to borrow and invest? well, i tell you how.

you lower the interest rate to practically nothing. >> it's happened. >> that's my point. through quantitative easing you flood money in there. they've done all that. >> yeah. >> now what? >> and there are several components. and believe you me, at wells fargo we are dying to lend money. it's a great opportunity -- >> now, there are some out there who say no, you rejected me. jumping off his couch. >> with the deposit rates it's so cheap to get funding these days, right? so the opportunity to lend that out in the marketplace is a tremendous opportunity. obviously, as we come out of a period in which the country has seen imprudent lending standards, it would be ridiculous for us to jump back into that. you know, keeping -- people have said, well, the bar has been raised. the tragic thing is probably the bar is about where it is but based on cash flows, based on collateral values, based on credit a lot of people aren't able to clear that bar that were able to three or four years ago. >> so the money's there but it's just harder to get at? >> the credit-worthy borrowers

is really the challenge. but believe you me, banks are tripping over themselves these days to be lending money to credit-worthy borrowers. absolutely. >> this is the way you're making money, is by lending, is by creating products that people will come in and use. >> if you can borrow it at less than -- close to zero and lend it out at 3%, 4%, 5%, that's a great business to be in. >> can i ask you -- i'm sure there are enough people who feel like this, but for some people who are looking to the future and trying to invest in the future, how would you advise them in this uncertain time about where they should place their money? what are the safe bets for them, for the ordinary person? >> the most important thing i would say is be careful not to fight the last war. obviously, we've seen stock prices plummet, home prices plummet, unemployment skyrocket. and that's created a fear. what i would suggest is that people, what they should be fearful of, i'm not saying don't worry, be happy, but afraid of the right things. there are some things coming down the pike, maybe not next

year but a few years up, higher tax rates. that's a given. higher interest rates. that's a given. 67% of u.s. treasuries are held by foreign investors. at some point that music's going to stop. the foreign aid that we've been recipients of won't be pouring in. and then higher inflation. >> let's talk about inflation in just a second. we're going to take a break for a quick commercial. we'll be right back. our points from chase sapphire preferred are worth 25% more on travel. we're like forget florida, we're going on a safari. so we're on the serengeti, and seth finds a really big bone. we're talking huge. they dig it up, put it in the natural history museum and we get to name it. sethasauraus. really. your points from chase sapphire preferred are worth 25% more on travel? means better vacations. that's incredible. believe it...with chase sapphire preferred your points are worth 25% more on travel

when booked through ultimate rewards. we were talking with erik davidson of wells fargo. you talked about inflation before the break. there's this flood of dollars that are in the economy. a high school student would say that causes inflation. but it hasn't. there isn't any inflation. >> oh, absolutely.

you're absolutely right. right now. and that's the point. it's coming. it's coming. and right now we're the beneficiaries of inflation of around 1% to 2%. but talk to somebody who's paying for a college education or paying for health care. it's out there. and there's more to come. we at the table, we know what inflation looks like. and even if it goes up to a relatively moderate rate of even just 4%, 4%, you've got prices doubling every 18 years. >> getting back to what you were talking about before in not fighting the last war if you're an investor. so the bond market is assuming that inflation has been -- over the long term. not just the short term. so they're just plain wrong. and is there a rout coming in bond prices? >> i'm very concerned about a bond bubble. because people forget that bond prices can go down. i like to remind our clients that when you're giving the u.s. government 10-year money at 2 1/2%, you're effectively choosing a strategy to lose money safely because after

taxes, after inflation, over that ten-year period you're almost guaranteed to be losing money on a purchasing power basis. >> but the current assumption is as long as the chinese keep buying, and they are the world's buyer of treasuries by default, then it's quite fine to line up alongside them because the demand is there. is that going to end? >> well, assuming that whatever's happening today will continue forever has always been a bad strategy. witness houses. witness technology. we have enjoyed a three-decade bull market in bonds of declining interest rates. we have now two generations of people who have seen nothing but interest rates go down. it's not a question of if. it's only a question of when. >> i think it goes back to my original question, which is is what we saw over my adult lifetime not the norm? that everyone expects, well, you have recessions, then they come back, they come back fast, and everybody benefits and it's great. maybe not. >> well, this question of normal always intrigues me. my mom always used to say, hey,

remember, normal's just a setting on the dishwasher, it's nothing else. but when people say i just want things to go back to normal, what does that really look like? normal inflation has been up around 4% over the past 50 years. normal mortgage rates have been up around 8% over the past 50 years. normal tax rates, the highest tax rate over the past 50 years has been close to 60%. do we really want things to get back to normal? >> so time to get the money out of the mattress and put it somewhere because it's going to start making money soon? >> i think the market is going to reward those who are willing to take some risks and come off the sidelines. absolutely. >> and the question is where do you take those risks? gold? bonds? >> you always want to have a diversified portfolio that contains all the component parts. there's a lot of things going on outside of our country. 97% of the world's population, 3/4 of the world's economic production, 2/3 of the world's stock market capitalization is outside our borders. even places like england look pretty attractive these days. >> even places like england.

i'm leaving it there because that's going to be -- >> he's the english -- >> that's going to be at least a half hour conversation. erik davidson is with wells fargo. we'll be back in a minute. so, we book a flight to hawaii using our points from chase sapphire. last minute... on christmas.

and sitting next to us, chevy chase. and we really hit it off. we play golf, and then the luau. he's like da vinci with ice. and after, we help hang christmas decorations. wait, wait, wait. you flew last minute... on christmas... with points from chase sapphire? yeah. amazing. believe it. with points from chase sapphire, you can book airline tickets with no blackout dates or restrictions. that's our show for this week. my thanks to tudor brown and erik davidson as well as richard waters of the "financial times" and maggie shiels of the bbc. i like keeping you updated on some of the accomplishments reached by our contributors. this week another book. this one from reporter davy whitney. her book "the mockingbirds" is brand new from little brown. daisy is one of six "press: here" contributors who are also accomplished book authors. we've added an authors page to our website. you can see all the various titles. at pressheretv.com.

i'm scott mcgrew. thank you for making us part of your sunday.