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tv   Bloomberg Technology  Bloomberg  March 13, 2019 5:00pm-6:00pm EDT

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♪ >> i am emily in san francisco, and this is bloomberg technology . coming, spotify versus apple. the music streamer calling for the eu to investigate the iphone er, saying it has created an untenable situation with ever-changing rules and a massive tax. plus, google power struggle. co-founder worried he would lose
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control of the company in 2011 and delivered what one director called a veiled threat to quit. and we will talk to elevation partners about washington's newtek agenda. first to our top story. spotify is taking on apple. apple should be cut of allpicking a sales on its apple store. any big change to payment terms could affect apple earnings and cash flow. i want to bring in the cofounder of elevation partners, and also so what is spotify arguing in this complaint? that spotify is arguing the developer of the competing streaming music service and
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apple music is giving a lead up over spotify and spotify is complaining that at that is unfair. emily: the spotify make a good point? spotify does make a great point here, but i find it obvious that apple as an organization of business is going to promote apple music. points is thats apple takes 30% cuts for subscription apps that only compete with its own services, but that is not the case. the firsta 30% for year and 15% for the second year for all subscription apps. companiese seeing working around that cut by making sure they have to a website or other platforms and log in.
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you are also seeing app developers raising their prices exclusively for iphone users in order to take act attacks of 30 -- take back the tax of 30%. -- y: how >> the argument is way less clear-cut that -- then people would have you believe. the apple situation from an antitrust perspective is going to be hard to defend. the end of the day, the issues we worry about with other monopolists -- come to bury. i do think that apple is going to have to work very, very hard to justify this. what i think makes people sympathetic towards apple is that the apple store has been one of the ways that the apple predatoryted from
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apps like google. that perspective, apple is a good guy, but in this particular case, spotify is making a point about participating in the market. -- the economic argument that spotify is making is way less sound than they want us to believe. but antitrust may have some weight. emily: mark, how is apple responding? apple has not been responding on this issue, i do not think this is something that apple put much thought into while developing apple music. i think this is a similar argument to apple not being allowed to sell its own products at the apple store because there are hundreds of them around the world. i do not see why apple should
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not be allowed to sell their own applications through the store. what i do agree with on the spotify side is they could level the playing field. right now, only apple applications can be set as the applet, the email app is 's app, so you could make any third party app as an equal citizen on its platform, that could go a long way. emily: roger, i am sensing that you agree. roger: in general, i do. but i'm incredibly sympathetic to apple's position. a goodt make intellectual arguments for and because my basic believe in antitrust is that people should not make markets and then participate in them. i am not sympathetic to spot a five because spotify has done tremendous harm to musicians in the music business. this is a difficult thing for me emotionally to look at. emily: you are a musician
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yourself. roger: exactly. so i have no sympathy for spotify. from an investor's point of view, you to recognize in the european union, the antitrust case is going to be decided on the merits of their antitrust law. as mark suggested, the antitrust case is solid. the question from apple's perspective is if they were faced with the choice, would they be willing to either shut down apple music or manage it in a different way in order to continue to have the same basic business model. apple music is not that important apple to justify losing the app store in its current levels of control. hasy: that said, kim cook touted the business's service as becoming a much bigger part of apple's business. roger: i think that is looking
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at it too narrowly. go and take the hardware business and make that a subscription. andpay something per month you get a bundle of services with the base case and then you can pay more for more services. context, apple music looks different than it does today. and its relative weight in the bundle is going to be different. i amk at this thing and if apple, you have to look apple oreic and ask, is this as c going forward as it might have been a couple of years ago, and i'm not sure what the answer to that question is. emily: meantime, apple's holding in of that and a couple of weeks where it is going to unveil it's streaming and original content strategy. we hear there might he celebrities at the event. what are you expecting? is an interesting backdrop to the spotify
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situation because apple is going to really announce itself as a services company on monday, march 25, by introducing their competitors to netflix, their magazine subscription service, and their new credit card strategy. i am expecting that and all sorts of services discussion. applee with roger about shifting to a subscription model. but spotify, spotify put out this website and it has a list of five issues it takes with apple. apple could basically good work with spotify and mitigate those five things. they are asking for that are to thats -- access apple watch, apple could do that. they are asking for special concessions regarding percentage splits on the app store. they are asking for the ability for easier upgrades on the app store.
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annual developers conference and i would be surprised if they were not already planning these things that would mitigate the problems on spotify's perspective, as well as the other app developers. emily: we are going to have full coverage of that as that on march 25 right on bloomberg . mark gurman, thank you for joining us. roger, you are sticking with me. meantime, facebook, instagram, and facebook messenger experienced outages around the globe on wednesday. releasing a statement saying, we are aware that some people are having trouble accessing the facebook family of apps. we are working to resolve the issue. coming up, we are going to break down senator warren's ambitious plan as she campaigns for president, taking aim at google, facebook, apple, and amazon.
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sxsw, thaton a time, is where it all went down. this was a huge tech festival but now it is a place where ambitious politicians come together. we will discuss. this is bloomberg. ♪
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emily: longtime tech and music festival sxsw turned into a campaign stop for presidential 2020 candidates. elizabeth warren promised legislation that could break up facebook, google, and amazon. senator warren says that they have too much power. she declaresent, that she wants to make antitrust cool again. what would a big tech breakup
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look like? what, i am dying to think -- to know what you think about the proposal. i really like what elizabeth warren is doing. me andst reached out to another associates back in 2017 with her early thoughts relative to what was going on in technology. i was incredibly impressed by the insights that she had and comparing what was wrong in tech to what she had seen go wrong in the banking business where essentially, you had markets where one side had vastly superior information and was able to control the information available to the other side and were people who made markets were also participating in them. was this thing came out, i -- i have studied it very closely, and i believe in two
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different ways. first, the big tech companies, google, facebook, amazon, are blocking competition from startups in their immediate area. they are causing innovation to come to a stall in and around the core internet. they have been amazingly successful at this. and i think that is a terrible idea, i want to end that. and warren is on that. through ibm, the second at&t breakup case, microsoft -- you have seen massive new industries created by using antitrust to stop the incumbent from dominating new spaces. so, i like that. i also like the notion of preventing companies that operate markets and also are participating. google and facebook do this and advertising.
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amazon does this and its marketplace. -- in its marketplace. cross sharing of data are also really, really bad. i think that warren's proposal is the first step. the history of tech was misinterpreted in some of the statements that came out, i really could not care less. and the reason, the issues in of thehe dominance public square, the manipulative technology that people are using, their surveillance that is now pervasive in our lives -- that is bad for society and we should not allow that. new tech companies are kind of like the earliest 20th century companies so jpmorgan and all. that: i should point out there is no real breakup threat under today's law.
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a lot of that could change in a lot of lawmakers would have to get on side. do you see a better argument to break up facebook, google, or amazon, or apple. which of those companies serves elizabeth warren's argument? roger: let us be clear. this is a position. you want to start with a position that says we are going to do something really dramatic. we may be open to finishing somewhere else. i think both the really understand this issue. whether you break them up or not is less important to me then you prevent them in operating in ways that stalled the economy. some ofyou can achieve this without breaking them up, but the threat is how you get them to the table to have the conversation. i want to be clear about something. i am really excited about the strides we have seen in the trump administration,
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particularly in the federal trade commission and the antitrust department. what i've found is these are people that understand that there is something really wrong with what is going on in tech and antitrust is the most pro-growth way of dealing with that. they are the antitrust tools and the regulatory toolbox and both of them are doing things right now that are a big, big change from what we have seen an antitrust under the obama administration and before under the bush administration. i do not think this is partisan, i think this is a right versus wrong issue. apple,facebook, google, amazon, these are four different companies. do you think any one of these is more of a culprit or target than another? roger: i think google is by far the most effective at this. they had this insight into thousand two. when they were trying to prove -- in 2002.
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when they were trying to search, they discover that you could use it to predict behavior. then they go in and do gmail, and they set it up so they could machine read all of the emails, which would tell them what people's behavior was going to be. things likell start stringy view where they drive up and down the streets taking pictures of everybody's private spaces. so you have google home, are putting audio and everybody's houses, and they are taking away all of our privacy, defines being able to make choices without fear. taking away also our pricing power because they manager access to information
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just like they manage anybody that has something to sell. essentially, they are centralizing the whole economy in the hands of google number one, facebook, amazon, microsoft, and verizon. let's face it, it is a brilliant strategy. i just think we need to have a conversation as a country. corporationsal for to own and to trade our most private data? why are they allowed to buy and sell and trade our credit card transaction data, which they get from experian and equifax. why are cellular companies allowed to sell our location? why are health and wellness apps able to sell dataware if it was a hospital they would not be able to? allowedrnet company is to sell our search history online. emily: does apple stand out to you from the rest? .oger: apple is not perfect
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a lot of what they do in china, i object to. but what they are doing in this area is fantastic. for hoping there is a way them to avoid the antitrust problem because i think apple is trying to be a good guy, and they really succeeded. actually does protect your privacy and security in the ways that google's androids does not. i want to reward apple for doing that. there are clearly areas where they are vulnerable, and the spotify case would be one of them. could spend hours talking about this, always appreciate having you here. e, alwaysamme appreciate you stopping by. coming up, president trump says the u.s. is grounding the 737 max, and following the model's
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second crash in five months. this is bloomberg. ♪
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♪ emily: president trump announced the faa will ground the 737 max 8 and 9 planes. we are going to be issuing an emergency order of prohibition to ground all nd 737s of the 737 max 8 a max 9, and planes associated with that line. emily: brooks sutherland cover is the industrial or her with bloomberg opinion. the faa saying they gathered
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unspecified evidence at the site. ? what do we know? -- what do we know? >> we still do not know at this point what the evidence is that would consider the faa to reconsider its position. we did hear from canada earlier today that shows that there was new surveillance data from the crash that was inconclusive that connected towas the earlier crash on the lion air a flight, and that is what gave canada the reason to say we are going to put a brake on this. president trump did say that the u.s. is working closely with canada, so they may be talking to about the same or valence data. emily: -- the same surveillance data. emily: why is the max 9 included here? brooke: i think it is a blanket ban on the entire family, but the max 9 has not had any
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crashes. playingthe faa is catch-up here having been late to the game as far as grounding them, and trying to demonstrate concern for the passengers. arguably, it was rather reluctant to demonstrate earlier confidence relenting in the plane even the regulators around the world took more aggressive action. emily: what are we hearing from boeing? we heard about the software that did not roll out until after this crash. it took several months. is there any explanation? brooke: the software update is not in place yet. they are expected to have that by april. boeing's to be really not been great here. i was on a call this afternoon that said, it is a little ironic that boeing is calling the faa's
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grounding of the planes proactive when it is anything but. every other regulator has already grounded the planes. boeing had the opportunity to get out in front of it and take control of the narrative, and ask of the faa to ground these planes from the get-go. we still do not know what happened in the ethiopian twoine crash, but you had airplane crashes in a time when that is relatively rare, and over 340 people passed away. it calls for conservatism as we try to figure this out. emily: just to remind everyone, we still do not know the actual cause of the second crash. we still do not know if it is connected to the second crash, bloomberg's brooke sutherland, thank you for the update. quest up, larry craig's for power. in the show, elon musk
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versus the whistleblower. how tesla's ceo hits back. this is bloomberg. ♪ want more from your entertainment experience?
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emily: this is bloomberg technology. nearly 20 years ago larry page is sergey brin started what now the behemoth google. it has become one of the largest public tech companies with him market value of $830 billion here and with any company becoming public is the threat of founders losing control, something a board member described as a concern to cofounder page. with emails and documents recently unsealed in a court case, we know how he wanted to keep his grip on his creation. why should i sacrifice and work so hard if i might not be in
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control? that is what he told a reporter. we have a professor from george washington law school who specializes in corporate governance, and a reporter who covers apple bit -- covers alphabet. what is interesting is is not the first time we have seen any end of division between the google founders. why page wanted this was because he was concerned what sergei brin would do with his shares. explain what happened. >> that is what he expressed to the board. we don't have larry speaking at all here. there is a deposition from sergei. you can see from the beginning, the board brought on eric schmidt, he comes back, visits steve jobs, ask what it takes to what itd ceo -- asks takes to be a good ceo. he is trying to pivot the country. circuit is going into the
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beginning of -- surrogate -- sergei brin is going into the beginning of self driving cars. there was always a healthy tension their documents show at times maybe it wasn't. sell theirsell -- shares and an outside group would take control. emily: the founders wanted the creation of a new class of shares. they already had the class b shares, and votes of regular shareholders, shares for regular shareholders had one vote. mark: initially they said december around christmas we will give this three weeks. the board pushed back and there was back and forth, and the lawsuit demonstrated there was a bigger push back. emily: o.a.t. illini expressed concern about pages and threads
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and the board created a committee to look into whether a shares should be granted. what do you make of how google's board handled it? , looking backsed on stockholders with a controlling the stake is not easy. they pushed and insisted on larry explained what it was up to. if he was concerned about ordinary pollution, they could avoid issuing stock. they could use cash for acquisitions and purchase stock back. they pushed hard and his men concern seemed to be if sergey larryould sell his stock, would lose the jet that's the joint majority control. there is concern -- larry would lose the joint majority control. there was concerned no stocks would sell -- sell that problem. he could sell to sergei brin for the b and retain control.
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the board did a good job. emily: the board still decided to start this new class of no voting shares. a goode saw john doerr's example. he has been a board member for a long time, originally against the proposal. one deposition said he changed his mind, convinced it was the best way to recruit talent. google has been about recruiting the best talented engineers. emily: keeping sergei brin and page engaged would help recruit talent. mark: and they made the biggest $12.5 billion acquisition of motorola, they had plans coming to fruition with alphabet and self driving cars, biotech and health care, all the stuff that didn't exist in google in 2011. now much grander and areas moving in different fields that arguably could not have happened
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if the founders didn't take control. emily: when you give founders control there is there is the risk of them not making decisions that are good. larry page personally approved a $1 million payout package for andy rubin, accused of sexual harassment, and permitted this guy to leave quietly and invested in his company. also played another google executive $45 million, also accused of sexual misconduct. where was the board? larry: both of these examples show the downside to dual class. the proponents of argued the founders envisioned in their out talk -- long-term outlook warrant control. but the downside is you sacrificed accountability to shareholders. it is true and if think it is disputed by the company and by the executive who was leaving
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that the ceo is able to unilaterally make that decision, that is a downside. i can't say the board has a lot of power in this situation, but it points out some of the negatives and problems of managerial accountability with a dual class stock. to the extent that sergei brin was taking of selling anyway and larry is sort of faded a little bit in the background running the company it is not obvious what their vision and sense of the long-term vision is that warrants disproportionate control. with: andy warren did live $90 million, but other tech companies have emulated this dual class model, facebook's mark zuckerberg, you have upcoming ipo's, founders of
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companies doing the very same thing. is the dual class structure a good thing with the company? larry: it is good when they have that vision and secret sauce and outlook, and sometimes it can be very helpful. it has been used successfully in these tech companies, by nike, with phil knight. if the guy has a secret sauce [indiscernible] -- but you have got to be able to trust the fellow. he must remain accountable. this appetite -- episode downside. people need to be careful. we get some obnoxious behavior, you will get public backlash people google glass, and may crackdown. that would not be in anyone's interest because [indiscernible] is useful and effective. we need to protect it, and those
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who benefit ought to indicate the trust that is being shown. emily: george washington university's lawrence cunningham -- a thank you, and great cunningham, thank you. a whistleblower, lawsuit and reports of a fake shooter. what do they all have in common at tesla? this is bloomberg. ♪
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in june 2018 back a business insider article detailed efficiency in the tesla factory in nevada cost $100 million. that came from a whistleblower believed it to be martin trip, a former employee.
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but the story has been one wild ride after another after investigations into corporate estate nosh and -- corporate espionage and others. to untangle it all for us, matt robinson who wrote about this in the upcoming edition of bloomberg businessweek. it is tangled up. there are new developments that other tesla employees have spoken to the fcc and that tesla's response to the leaker was out of proportion. what exactly happened? >> that is right. marty trip came out, business insider story out in the beginning of june saying it was determined trip was the one who gave information to the reporter there. reporting the individual in charge or involved in figuring out who trip was
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said they went overboard trying to figure out who he was, saying, disputing some of the information from tesla itself saying trip didn't sabotage or hack company systems. he did stuff with data and internal numbers but beyond -- saying making accusations, they didn't have evidence. emily: the security employee told the sec they hacked into tesla, trip's phone, had him followed. trip and elon musk were involved in a heated email exchange, trip saying you have what is coming to you for the lies you told the public. elon musk said threatening me makes it worse for you. you are a horrible human being. trip responding, i never framed anyone else or insinuated anyone else is involved, putting roads on the -- insinuated anyone else is involved. putting roads on the car that
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are not safe is a horrible human being. wraps you could call these rumors. we don't know, but unsubstantiated statements? fired june 19. news of the lawsuit, tesla sued trip saying he had basically taken valuable ip, and that exchange was that morning after that lawsuit came out. a few hours later there was a chip placed to a las vegas call center at tesla saying marty trip or a friend of marty trip's was saying he was distraught, planning on his shooting. that was related to the sheriff's office, chased him down, saying is this a credible threat. ,hey did make contact with trip and we described body camera footage. -- the serif said
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we don't deem this a credible thing. they told that to tesla. and thereafter the next day tesla put out a statement about a threat the service department had deemed not to be credible. emily: in the meantime business insider is reporting elon musk took issue with an responded to one of the reporters, lopez, responding to one of her stories thing it sounds sketchy if true. if it possible you are serving as it inside trading story -- and exit employees said he was bright and was given valuable ip andxchange -- he was bribed was given valuable ip in exchange. is there any evidence some broader conspiracy is at work? tasked withidual
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trying to find trip at this time was involved in investigations, sean got through. he is going on the record in our story saying they never found evidence to suggest he took a bribe. trip never admitted to it. tore is no credible evidence substantiate accusations. emily: what is next now with what these folks have told the sec? could they take action? trip did talkted, to the sec, last summer, talking about how he accept internal numbers. the issues here involving the police reports and potential sort of phantom shooter threat, the sec will be concerned with saynumbers, what did tesla to investors and what did their numbers reflect? that is something the government
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takes a long time to investigate. emily: they never determined who called in that. and teslaver did, didn't make the person involved who took the call available. robinson, thank you for your reporting in this upcoming issue. the chinese e-commerce company out with its fourth-quarter results, have -- how it is competing with alibaba. and first one result thursday, but will this chipmaker be affected by a slowing smartphone market? this is bloomberg. ♪ ♪
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uber is ramping up for what could be one of the five biggest ipo's in the united states. they have a list of banks and underwriters, like bank of america, barclays and allen and
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company. morgan stanley is leading the ipo along with goldman sachs. the company could be valued at $120 billion. companyese e-commerce -- they beat expectations but losses surged. this has an effect on advertising and technology to take on rivals alibaba and you are an investor and worked with the founder many years ago. talk to us about how this fits into the broader e-commerce landscape in china. i think it really addressed the market segments, has a really served very well by alibaba or jd, which is how to effectively find merchants at a good price and the model they
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had, the social network, referred by friends and aggregated demand from consumers very quickly so the supply, we can provide merchant products at a very attractive price to users. you see the biggest user demographics with third or fourth tier cities which is really the driver for internet growth. this is a company that really has a lot of potential. emily: is there a good comparison in the u.s.? james: it is original innovation. my partners and i always try to figure out how we can make it work in the u.s. emily: is it was like a new budding amazon but in the popular part of the country -- in the middle of the country? >> yes, and now it is a public
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nasdaq company. emily: why doesn't it work in the u.s.? james: there is a potential. most of the sellers are in china. if you go here with the amount of products made in china, the , it ists, available easier to do that in china. emily: what do you think the biggest opportunities in the china tech scene are? james: increasingly we are seeing enterprise [indiscernible] picking up. emily: how is the trade war affecting your job? raised our fourth und, $60 million u.s. i was surprised. the biggest demand is from the top investing -- investment people of the u.s. emily: why? james: people recognize china is
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becoming one of the largest venture investment markets in return, in terms of growth, early-stage particularly is attractive. you want to get into the pop funds, you need to deploy that. it is long-term investment that people see. emily: do you see the difficulty for u.s. investors to navigate china and the bureaucracy and regulatory issues to change anytime soon? doesn't seem the chinese back -- government is backing down. james: that is why they look for the top vc managers. in terms of investing top internet companies, actually we see the regulation is getting more relaxed. to some degree there is pressure from the u.s. side, china to open up the market even more. we have seen it is more favorable for the u.s. investors.
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man atyou worked with a google who said it is basically impossible for google or facebook or many u.s. tech companies, like amazon, to succeed in china, airbnb even. do you agree? james: i do. i started at google in 2003, the first representative for the google china office. of thelook at all companies, they have a mentality of working in the u.s. that should work in china, but the market is different. pinduoduo, they are not structured to compete with -- google is not structured to compete with local competitors. emily: thank you. james: thank you. emily: broadcom reports earnings after the bell, forecasting fourth-quarter revenue at $5.8 billion, up 9%. despite high hopes for the broader outlook, they face
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slowdowns in key markets. ed ludlow explains. ♪ reporter: there is a good chance wi-fi or bluetooth in your smartphone is made by broadcom. the $105 billion company sells them to apple and samsung and apple accounts for 25% of the company's total revenue. that is why they are seen as a barometer for the health of the smartphone industry. last month their wireless business was better than expected. ceohe earnings call, the talked about a north american customer who bought more chips than expected to put in its older smartphone models. he didn't name the customer. 3% astill fell 5% from year earlier. 5% year still fell from earlier to 3%. the blue line from july through
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september last year, but since november, broadcom has outperformed the stoxx index as the company weathered the slowdown in the global smartphone market. now there is a new concern facing the industry. chipmakers from nvidia to intel are talking about slowing demand in data centers. >> the chipmakers have ordered to much, they got ahead of bill plans, need to work through inventory. broadcom in the past relied on sales to offset weaker demand in smartphones. while the company expense demands from cloud customers and concerns that broadcom could get distracted from its focus on chips. they purchased software marker shares for the most on record and the deal left analysts scratching their heads why they stress that shifted from hardware to software. bloomberg intelligence still
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sees the deal being the main driver of failed growth and margins in 2019. ludlow, bloomberg news. emily: that does it for us. we are of course livestreaming on twitter as always. check us out at @technology. this is bloomberg. ♪
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