tv Bloomberg Technology Bloomberg August 26, 2019 11:00pm-12:00am EDT
♪ taylor: i'm taylor riggs in new york in for emily chang. this is "bloomberg technology." while president donald trump says china wants to make a deal on trade, the u.s. and france actually strike a deal. trade is front and center for apple investors. the company sheds millions of dollars in market value as the spotlight shines on its chinese production base where almost all of the world's iphones are made.
suing taiwan semiconductor for using patented chip technologies. the u.s. trade agency imposes import bands that could roil the market. first, to our top story. days after escalating the trade war with china, president trump says beijing badly wants to make a trade deal. pres. trump: i think they want to make a deal. i'm not sure they have a choice. the united states, which has never collected $.10 from china will, in a fairly short period of time, will be over $100 billion in tariffs. taylor: to discuss more, i want to bring in peter.
it is very interesting. we sat here friday and the stocks in chipmakers dropped 4%. the sentiment has improved. would you agree with investors that we got an improved reading today on trade? peter: it is mildly better. the reason that trump is saying the chinese won a deal, to me that shows that trump wants a deal. you can regard that as trump's way of saying, let's work something out. he still wants is terms but he is talking about negotiating rather than raising tariffs again. taylor: if you come into my terminal here, we have talked a lot about how the deficit has narrowed recently.
long-term, this trend of the u.s. trade deficit between the u.s. and china is getting bigger. thus trump really think beijing -- does trump really think beijing needs this deal more or does the u.s. need this deal more? peter: china, still be in a smaller economy, much more export dependent, and being a poorer country, of course, does need the deal more. that doesn't mean that xi of china and will give into whatever trump wants. he needs to save face. plus, he doesn't face an election the way that trump does. trump has an election coming up next year. . you can't put the u.s. public through pain with the hope something will happen later
because he will be out of office. we had the g7 meeting in france and we had emmanuel macron, the president of france, drafting up a statement expressing the view of the group of seven that we should keep pursuing open, fair trade. taylor: we will keep pursuing that conversation with you in the days to come. it is nearly impossible to talk about the policy effects the trade war is having on the tech industry without mentioning apple. the iphone maker has shed tens of millions in market value since friday, trump street that -- since trump escalated tariffs on friday. he is ordering u.s. companies to move out of china, something that apple analyst dan ives says is wishful thinking. dan: it is a nightmare that
doesn't go away for the street. we handhold. ultimately, it comes down to this. it is a possibility to move 15% production. if they move 20%, that would take three years at a minimum. taylor: on the phone, da davidson senior research analyst tom forte. mark, let me start with you quickly. dan ives said that china can only move about 5, 10 percent of that production out of china but it would take about 18 months. what is your take of apple's ability to work around china? mark: i agree with dan that it is going to be an extensive process.
it is going to take a long time. if you look at while we are in this position, it is because of the current political landscape. it would take longer than it takes to reach another president, past the next four, five years. there is a question to be asked, is it worth apple waiting it out. also, another question to ask yourself, is it more expensive to move everything from china than the cost of tariffs in the first place. there are a few balancing acts going on here for apple. taylor: the headline, we would take advantage of tariffs selloffs to buy these stocks, the first of which listed in your note is apple. tom: in the note, what i was trying to point out is that in
some regards, we are looking at apple in the wrong way. this is a company of such great size and political influence in both the u.s. and china that the rules don't really apply for apple. you saw that earlier this year when they got exclusion for their apple smartwatch among other products, and you so more recently when there was a delay that basically gives them one more chance to sell next-generation iphones without tariffs. with china, we would argue that with 20% of their sales to the chinese consumers and given this large supply chain effort, apple may be able to negotiate faithful terms at least relative
to the other consumer technology companies within china. we think this is the biggest risk to the company but we think investors may be overestimating how much it can hurt apple when they are able to negotiate with the government of china and with the u.s. because of their influence. taylor: assuming that tariffs go in place and apple is forced with passing on higher costs to the consumer, how healthy is the consumer to absorb an iphone that costs several thousand dollars or more? is that something apple is willing to do and can do at this point? tom: from my vantage point, i think what we have seen with the current generation iphone devices is apple doesn't have the pricing power it once
thought it had. looking forward, it will have pricing our when it comes out power whene pricing it comes out with a 5g device, especially one that can be used on a global basis. i would argue that, yes, apple has pricing power because of its brand, but i think it may not have pricing power on the smartphone until it has a global 5g rollout. taylor: mark, as we were thinking about tim cook's meetings with the president and the white house this week, a lot of the concerns stem from apple losing market share, namely to samsung. how concerned is apple mostly now about losing market share to some other competitors? mark: i think that brings us back to the price question. i think because these tariffs have been priced in, apple had to anticipate this coming. it has been talked about for years now.
you saw price increases to the ipad pro. the iphone by about $300, the apple watch, some of the other ipads earlier this year. those concerns would have already come into place. i don't think the tariffs are going to put extra pressure on them there. the question, are they going to take a bigger than expected margin hit? that could make their products even more unaffordable than they are already. taylor: is market share or margin more of a risk for apple? tom: i would say market share but the other thing we are not necessarily thinking of for apple is a lot of their new initiatives are less affected by
tariffs. proprietary video content, financial services, and their efforts and health care. the good news for apple, influence to both governments, the u.s. and china, and a lot of their growth initiatives less affected by tariffs. taylor: all about that diversification. thank you. that was tom forte from da davidson, and bloomberg's mark gurman. coming up, we take stock in what bonds have to offer. if you like bloomberg news, check us out on the radio, the bloomberg app, bloomberg.com, and in the u.s., on sirius xm. this is bloomberg. ♪
taylor: we always talk about how trade is affecting the equity price. if it is true that smart money is in bonds, i wanted to talk about how it is affecting debt from these big companies and more importantly, the amount of debt they are issuing. i want to bring in bloomberg's corporate bonds reporter and a technology analyst. generally speaking, we know that equities are so volatile given any tweet, any headline. our the bond prices of these companies doing? molly: more resilient when we look at the fixed income side of things. everyone is looking at number of iphones sold. let's say the numbers are calling for 90 million sold, apple sells 70 million, stocks selloff. bond prices will not move on
something like that. apple still has cash, they will still pay you back. taylor: jordan, would you say that these bond investors are little bit more less nervous about trade? is it easier for you to focus as a data analyst on some of the fundamental cash reserve levels and ignore the headlines, so to speak? jordan: for the most part, i would agree with that. certain credits are more exposed to trade. apple would be a good example. a really good balance sheet to support that. in past cycles, tech is a very highly rated sector. it has underperformed a little bit given the trade war is what is causing the pressure.
taylor: you had a great chart in your note talking about the issuance levels. i wonder how much of these headlines have stopped companies from debt or frankly coming to market because debt has never been cheaper than it has been in three years and arguably ever. jordan: that is a good point. tech has exploded over the past 10-plus years with $150 billion being issued in 2017. in 2018, it resulted in strong technical and the space. 2019, year to date issuance up over two times the total level of 2018. that is due to m&a and refinancing activity. taylor: molly, you noted that repatriation folds into this as well. how is that effected some of
these tech companies? molly: tech used to make up a much bigger part of the investment grade units that we see today. in the past, we have seen repeat issuance. you know of access to all the cash overseas you hadn't had before. there's no need to do the debt market to finance buybacks if you already have this on your books. taylor: i pulling up a chart. it is looking at basically the option to remove spread between apple and qualcomm. molly has noted that more and more of these lower quality issues are making up more of the broader index.
the spreads are holding right in there. what is your take when it comes to some of the debt levels on companies you cover like apple or qualcomm? jordan: 10 years, a company like apple will be really strong for its balance sheet strength. when you look at a 30 year bond, there are better places to take risk. qualcomm was upgraded this morning given the partial stay ruling on friday which basically lets the company maintain the status quo for the time being. the company has really strong positions. modems and applications processing. i would advise clients to take a little bit of risk. you don't need to be in apple, but certainly take some caution for the low bbb names.
you want to stay away from those highly levered names. it is really the indirect impact of the trade war that competitors need to pay attention to. taylor: jordan was talking about taking on a credit risk when you can. in my terminal, we are basically looking at tech spreads in the high-yield market versus the overall bloomberg high-yield market in blue. yields are much lower than the broader high-yield market. given all the headline risk, i frankly have to ask why. molly: it seems like a bit of the opposite story. in ig we have seen some of the lower quality names.
high yields, it is moving up in quality. rising stars, one of them got acquired by fiserv. you have some upward trading momentum. taylor: that was certainly a segment that i love. next time you are coming on, we will debate some single name stories as well. thank you both for joining me. coming up, tesla's solar panels are caught in controversy. walmart blaming the company for several warehouse fires. how all three companies are responding, next. this is bloomberg. ♪
this is days after walmart said the panels had caused fires and stores. joining us from seattle to discuss is bloomberg's matt day. waking up to this story after hearing the walmart story last week is pretty interesting. what do we know about what happened? matt: the fire that happened last summer at one of amazon's warehouses east of los angeles, there was a fire that was from a panel installed by tesla's solarcity. this very loud lawsuit with walmart is not an isolated incident. taylor: what are amazon and walmart saying. they are no longer going to install new solar panels. does amazon intend to sue or are
they just now coming out with this news? matt: we had asked about it last week and that was the source of story on friday. there is no evidence that amazon is looking to take tesla to court like walmart did but they said they have no plans to install in the future. that is a big blow. amazon are one of the biggest installers of solar in the united states. turning off the tap of a potential source of demand for tesla panels could be something going forward. taylor: for our purposes, i wanted to bring us some of tesla's comments as well. they are saying that all 11 amazon sites with solar from tesla are generating energy, proactively monitored, maintained.
tesla has worked collaboratively with amazon to find out the root cause of this system. we continue to proactively monitor the system. at least for tesla's perspective, they are trying to create more of a cordial tone. any idea what this means for them and solarcity. two big companies coming out and saying we no longer want to install new solar panels. how big of a hit could this be for them? matt: it is more bad news after bad. we should also note, to their credit, amazon did not say they were stripping things off of their warehouses or data centers. to tesla's point, as far as we know, plenty of other facilities are operating without a pitch
hitch right now. taylor: that was bloomberg's matt day, joining me from seattle. meantime, enjoy discussing politics at work? i don't know if i do. don't take a job at google. a shift away from the famously open culture. they discourage employees from discussing politics and having disruptive conversations. workers will be held responsible for what they say at the office. we look at two companies in a heated legal dispute over technology that could hit billions of dollars. taiwan semiconductors. qualcomm coming up in trying to settle that suit last week. this is bloomberg. ♪
taylor: i'm taylor riggs. this is "bloomberg technology." u.s. chipmaker globalfoundries is suing taiwan semiconductor for patent infringement. the company accuses them of using their technology to help win billions of dollars in sales. the case has the potential to disrupt the supply from everything from smartphones to pc's. joining me to discuss is ian king in san francisco. on the phone, stacy rasgon, bernstein's senior u.s. semiconductor analyst. ian, let me start with you. line up what we know from the case so far.
i loved reading your story on it. a global semi foundries taking on taiwan semiconductors. what did you make of this? ian: this is potentially a huge deal. lots of patent cases around the world all the time. we don't pay a huge amount of attention to them but this is pretty far-reaching and aggressive. the venues they have chosen have real teeth. in theory, what globalfoundries is asking for could have a massive effect on the global supply chain. tsmc is essential to a number of products, most notably apple. what globalfoundries is going after is an export ban which could mean apple would not be able to bring a lot of the products it has made elsewhere in the world to the u.s. taylor: stacy, i want to bring you in not necessarily to talk specifics about globalfoundries and the taiwan semiconductor case, but more broadly speaking, we are hearing more and more about these patent infringement
cases that are coming out now. i wonder is it new or do these chipmakers file sense of urgency -- feel a sense of urgency and competition and threat that they are being more aggressive in protecting their technology, protecting their market share? stacy: that may be. the idea of ip protection is not new in the industry and we have seen these types of suits pop up all the time historically. i would say the magnitude of some of the suits does seem to have gotten larger. we have the one today. you may have mentioned qualcomm earlier. we had a massive ip case go through attacking multiple parts of their supply chain as well. it does feel like as the industry has gotten more mature, more consolidation, and a broader uncertainty has been peppering its way across the supply chain to a number of other actors, i think ip is
becoming more important. it feels like these things are getting bigger. taylor: one company that you know of that is perhaps breathing a sigh of relief is one of qualcomm. we got the news last week a federal appeals court said the company will not have to renegotiate its patent licenses while in the midst of appealing these antitrust rulings going on. how much of a win was that for qualcomm? stacy: it was a win and it wasn't. the appeals process itself is going to take some time. i think the case was put on the docket for january of 2020. it may take longer. qualcomm does not want to renegotiate the license involved, but do not want to renegotiate in the wake of the appeal. if they win, the horse will be out of the barn already. it was a win for them in that sense. you have to step back. investors said they were expected them to get the stay.
qualcomm stock went down in wake of the news. i think even if they were to prevail on the appeal, you are still left with the status quo. the current status quo of the business does not look super. the licensing business -- even if you take out the impacts of the recent apple settlement, the license business appears in decline. the chip market is drawing more of the revenue now that they seem to be shifting the story to that piece of their business. the chips environment looks horrendous given what is going on with tariffs and trade and huawei. the smartphone market is weak. the status quo, even if everything is fine on these legal cases, they are still stuck with that. taylor: ian, come back. given the news from globalfoundries today, qualcomm news last week, what are the implications for the global supply chain from the companies you speak to?
ian: everybody is right now, globalfoundries mentioned it in some of their press release regarding this case, everyone is heavily focused on what is happening with china and the supply chain, the u.s.-china trade war. that is a massive cloud on the horizon. as long as this situation persists, people are concerned that china is going to find a way to live without u.s. as quickly as they can. now they have an incentive to. that is the overriding concern in everyone's mind frame now. taylor: stacy, what is your take on the global supply chain? how much are you able or can you factor in all the uncertainty around patent infringement cases and lawsuits into your analysis on how to value a company? stacy: this is the hard part. the direct impact of this part, it is relatively minimal. on tariffs, which is a cause of this uncertainty, the direct
trade between china and the u.s. is less than $9 billion a year. in a context of an industry close to $500 billion, that is a drop in the bucket. same thing with the huawei exposure. new bans and everything. huawei in the whole industry isn't single digits. the worry is the indirect impact. most semiconductors travel between the u.s. and china being impacted by tariffs. it raises prices that drives production and currency movements has a broader impact on the macroenvironment. the problem is the potential outcomes range from no big deal to doomsday. it is really difficult to judge where on the spectrum we will end up. it drives a lot of uncertainty. we are seeing people unwilling to make decisions. companies are not sticking their neck out. they are buying what they need for that moment in time and very
hesitant to do anything else beyond that, to do anything else longer-term. taylor: ian, let me quickly give you the final word. what is next? what should we be watching for, whether it is a new case that could be hitting the news or a settlement perhaps? some of these chipmakers want to move the headline risk behind them. what is the key thing you are looking for next? ian: in particular case, globalfoundries is following a well-established path. they are trying to put pressure on tsmc customers, so then they will turn to the -- look, you've got to sort this out, put this behind you. get a license, pay for this technology so we can do business. that is always the aim in this particular case. if tsmc decides to fight this, we will seek. it really is in the hands of the courts. taylor: great conversation. thank you, stacy rasgon, on the phone. and "bloomberg intelligence's" ian king.
watch out, uber and lyft. the berlin-based service blacklane is expanding its footprint in the u.s. the company recently announced plans to open two u.s. offices in new york and l.a. caroline hyde caught up with jens wohltor, the ceo and cofounder of blacklane, to discuss the company's expansion plan and road to the public market. jens: we decided to expand into the u.s. quite early. in 2013, we launched our first markets in new york and l.a. since those days, we are growing our presence. now we are serving roughly 80 cities in north america. no surprise that north america is the largest market. the u.s. is the strongest company we have. revenue is coming from u.s. customers in the world, but also every third ride is happening in the u.s. caroline: talk to us about how you make your offering distinct.
it is more of a luxurious experience. uber also has a luxurious part of its service too. how do you make yourself distinct, serving the business community? jens: it is a service made for the business traveler, frequent traveler into the world wherever they go. we want to be present and available at their fingertips. it is all about quality at the end of the day. we are making sure we are in control of every little detail of the customer's journey. and dealing a lot with things like duty of care, making sure every ride is safe and our customers are protected. it is about the comfort they are experiencing. we are focusing on longer distances. our customers are sitting approximately one hour on average in the car. this is when you are really enjoying quality over any quick rides or other modes of transportation.
caroline: what about the business model in terms of profitability of blacklane? we have seen uber, lyft, they are struggling to show they have a pathway to profit. they are trying to gain market share. how are you dealing with the very nature of the business and supporting it from a revenue and profit perspective? jens: i'm happy and proud to have built a very profitable business. we have very healthy economics. we are having the opposite of the trends we see in the ride-hailing industry. our costs are growing significantly slower than the revenues. i think this is the only way you can have a healthy business out there. to give you an idea, unit economics. blacklane needs one ride to generate the same contribution margin than a ride-hailer would be able to deliver with 200 rides of their services.
caroline: will you be looking to sell shares to try to educate the investor as to how you are similar and how you are different from the likes of ride-hailing businesses that have gone public? jens: we are still investing more in our products and innovation. then, what we would earn from our bottom line impact. we are not just fully profitable, but very much under control. we are still looking for investments as well as preparing for potential ipo a few down the -- a few years down the road. we're currently thinking of two, three years in the future. but on the education side, i think it was kind of a blessing for us that we could see the recent ipo's happening, because now it is so much easier to educate our potential shareholders what the differences are between those two businesses.
they could not be further away if you ask me. taylor: that was the ceo and cofounder of blacklane. coming up, au revoir. that is what trump and macron said to france's digital tax. we will dig into why u.s. companies agree with macron that it was indeed a very good agreement. that's next. this is bloomberg. ♪
taylor: tech giants like google and facebook can breathe a sigh of relief. on monday, u.s. president donald trump and french president emmanuel macron announced they struck a deal to end a feud over france's digital tax. >> the international tax exists. on digital services, france will do away with its national system and everything that has been paid under the french tax system will be reinvested.
taylor: to tell me more, bloomberg's global tax reporter laura davison. give me the breakdown of what was this tax and what deal did we get today? laura: earlier this summer, france passed a digital tax. google, facebook, amazon -- 3% levy on revenues in france. the u.s. said this is not fair. u.s. tech companies said you are specifically going after american companies. it was mostly american companies. the u.s. trade representative opened up an investigation to this. trump threatened to put tariffs on french wine. today, what france agreed to his they said they will negotiate the global negotiations going on. 130 countries who are looking at basically reallocating taxing rights. which countries have the right to tax which profits. france said we will join the negotiations, and if there is a global deal, they will take away
their tax and reimburse all the companies who have paid it. they have not agreed right now to repeal the tax entirely, but they have an agreement in principle for a future date. taylor: what companies benefit the most? i know in the u.s., we talk about google, facebook, but also a lot of chinese, other international companies as well. who are the big ones really benefiting from this today? laura: it is google, facebook, amazon. also, smaller companies that are operating over there. the thing that really we will be looking for going forward is this global agreement they are working on affects digital companies. digital companies will be taxed. it affects pharma, manufacturing. a global trend of that multinational corporations -- there is a consensus that for too long, they have been able to operate in tax havens. countries are banding together and saying these corporate
profits are taxed somewhere in the world. taylor: i wonder how much of a surprise this was. we knew the digital tax had gone into effect. we weren't quite sure maybe, there was a ton of lobbying. how much of a surprise was the news today? laura: it was a little bit of surprise. last week, tensions ramped up to an all-time high. trump talked about the tariffs on french wine. a hearing in washington with tech representatives talked about this. trump said i will talk about this soon. there was an expectation he might announce tariffs or other retaliatory action. we saw things cool off a little bit. the lower-level folks will negotiate and there is optimism france's tax will be fully repealed. you have democrats in congress saying trump should not agree to something that does not fully get rid of the french tax now. they need to repeal this now.
taylor: we should note we did get an agreement between the u.s. and france. macron was coming out at the g7 talking a lot about wanting international rules around this as well and that he would really like some international clarity on this. any idea what that would look like? laura: basically what they are doing -- most countries in the world are looking at this and basically they are getting altogether and saying at what point can which country tax which profits? when you have companies operating across borders and particularly in the digital economy that this profit was earned to this country. users across the country, across the world are using these platforms and products. they are hoping to come to that agreement by the end of next year. that should create some clarity. really, it is now down to are companies going to be happy with
this? are they going to feel like they got a good deal? taylor: perhaps some much-needed good news for the big companies that have been otherwise beaten down in recent months. that was laura davison. still ahead, lyft has received its third upgrade this month. why analysts are optimistic about the ride-hailing company's profitability. this is bloomberg. ♪
taylor: lyft shares rose on monday after guggenheim predicts the ride-hailing company may turn a profit sooner than expected. the firm upgraded lyft from buy to neutral. a new note says he expects lyft at positive by 2021 instead of 2023. he said, "we have all underestimated how quickly the competitive mindsets might shift." joining us on the phone is
tigress financial partners chief investment officer, ivan feinseth. you also have a buy rating on lyft. walk me through if you agree or not with guggenheim bringing up the target to even positive profitability to 2021 instead of 2023. what do your models suggest? ivan: yes, i do. i think the growth rate of revenue, and there are a number of great changes they have undergone which could make the company a lot more profitable sooner. taylor: what are some of the other main drivers you see? ivan: sorry, you broke up. we don't have a good connection. taylor: what are some of the main drivers you have? you have a buy on the stock. what are the key positives you see about lyft? ivan: the biggest opportunity is the overall gaining of market share in the transportation market. there's about $1.2 billion per
year in ground transportation. transportation as a service of what lyft provides will increase as a percentage of that total spend. also, lyft is addressing a tremendous opportunity in health care transportation services. for people who could not get to a doctor on their own, and in many cases, medical insurance or the doctor's office pays for you to get a ride from lyft to come from the doctor or the hospital for treatment. nonemergency treatment. taylor: i like that you brought that up because we do know that lyft provides medicaid patients in arizona, provides transportation as you were mentioning. i wonder how much of that is actually part of a future growth opportunity for lyft than maybe a few years ago. we were not thinking that would be included when thinking about where this company could go. ivan: i think the health care
transportation service opportunity is tremendous. i like the fact lyft is focusing on that and not really focusing on food delivery. i don't think food delivery has a huge opportunity. it is great for the customer to be able to get things delivered on demand but not for the service provider. i think that the opportunity in health care service transportation is huge. also, lyft has a number of other key initiatives. they are the official rideshare provider for disney in both california and florida. they also have a partnership with hilton where you can earn hilton rewards points for your lyft rides. as well as delta, you could earn delta miles from lyft. those are great marketing opportunities. taylor: when you bring up they are doing a good job of staying away from food delivery, i have to say that sounds a lot like uber, for example, which we know part of its valuation and the
high valuation of uber was its diversification. it had international growth, food delivery. i'm asking does it make sense for lyft to stay in a targeted, simplified one track strategy versus trying to go uber's route of being a big -- having a lot of diversification when it comes to the revenue? ivan: i think there is potential opportunity to deliver food, but i don't think it is a profitable opportunity. i think medical service or health care service is a profitable opportunity. partnering with airlines to be the provider is a huge opportunity. with hotels is a huge opportunity because more people are renting cars less when they travel and relying on services like lyft to get around when they are on a trip, either for business or vacation. taylor: wonderful. tigress financial partners chief
investment officer, ivan feinseth. thank you for joining me. that does it for this edition of "bloomberg technology." tomorrow, do not miss our exclusive interview with apple cofounder steve wozniak. talking about the impact of the trade war on tech companies and why he is "disgusted with facebook." we are livestreaming on twitter. check us out, @technology. follow our global breaking news network, @tictoc, on twitter. this is bloomberg. ♪ from the couldn't be prouders
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♪ >> this is "bloomberg daybreak: middle east." global markets rise, as president trump says china called asking for talks. beijing says that's not true. it said not to underestimate the ability to retaliate. oil recoups some of the lost ground. futures in new york rose almost 1% after tumbling nearly 5% in four sessions. the president seems to be stopping his rhetoric on iran. he may be willing to extend a letter of credit and even