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First Move with Julia Chatterley
President Trump Says The U.S. Downed An Iranian Drone; Iran Says It Wasn't Ours; Microsoft On Cloud 9 After Some Stellar Q2 Earnings; It's 50 Years Since Apollo 11 Landed On The Moon. Aired 9-10a ET
Aired July 19, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Live from the New York Stock Exchange, I'm Julia Chatterley, this is FIRST MOVE, and here's
your need to know. Downed and denied. President Trump says the U.S. downed an Iranian drone; Iran says it wasn't ours. The age of Azure.
Microsoft on Cloud 9 after some stellar Q2 earnings. And it was a summer of '69 -- no singing -- it's 50 years since Apollo 11 landed on the moon.
It's Friday, we made it. Let's make a move.
Welcome once again to FIRST MOVE this Friday where we are celebrating man's first move to the moon, of course, 50 years. We're going to be talking
about space later on in the show. But for now, no moon shoots as far as U.S. stocks are concerned, though it does look like we're going to make
solid gains at the open today after a pretty choppy week on Wall Street.
Asia did well of course, too. The Nikkei rallying some two percent. The overriding theme here is this hope, I think for more global stimulus helped
along by some confusion, let's call it from the Federal Reserve yesterday.
Let me just explain what happened to you. The head at the New York Fed, John Williams made some comments that fueled speculation that perhaps we
could see a half a percentage point rate cut in July, and the bond market got excited. It started to price a far higher chance of that. In fact a
70 percent chance. Then, the New York Fed walked back on those comments saying that he was simply speaking theoretically.
Remember yesterday, we spoke to voting member Jim Bullard, he said that half a percentage point at this stage looks over done. And I think we
stand by that at this stage. I think that still holds. We'll talk it through later on in the show.
But first there's earnings to get to, so let me mention some of those. Microsoft, as I said, having a very strong quarter. We've also had a few
big names like Honeywell, United Health raising guidance hereto, fine. Expectations for this earnings season were really low.
But I think the bias so far has been to punish the misses, far more than you reward those that beats -- think the banks this week versus Netflix.
Perhaps that's natural though when stocks are near record highs, investors are already shooting for the stars here and discounting plenty of risks;
and Iran, and the tensions there are just one of those risks.
Let's get to the drivers because that's where we start. Iran denying a drone has been downed over the Strait of Hormuz. This of course after the
President said so in Thursday's session. Fred Pleitgen joins us now on this story. Fred, it's a case of he-said-he-said. Iran saying in fact
that, no, all of our drones are accounted for here. In fact, it may have been the United States downing one of their own drones. Talk us through
what we know here.
FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, it's certainly, Julia, is another incident that happened there and that key
obviously, waterway for the world's economy, for the world's oil shipping, the Strait of Hormuz.
When the U.S. was bringing a pretty large aircraft/helicopter carrier through, called the USS Boxer. Now, the U.S. says that the Iranians came
very close to that ship with a drone and then a Marine unit that was on board their ship used electronic countermeasures to jam the drone and down
it.
Now, the Iranians for their part, as you said, are saying that simply isn't true. But now for the first time, they are acknowledging that perhaps they
did fly a drone close to that ship, however, also ripping into U.S. President Trump. I want to read you a quote from one of Iran's top
spokespeople for the military. He says quote, "Contrary to Trump's delusional and groundless claim, all drones belonging to the Islamic
Republic of Iran and the Persian Gulf and the Strait of Hormuz, including the one mentioned by the U.S. President have returned to their bases safe
and sound after carrying out their scheduled surveillance and control operations."
And of course, Julia, you and I have been talking so much about the Strait of Hormuz and the Persian Gulf and all the tension that's been rising
there, and this is just another incident that seems to be fanning those flames, fanning those tensions.
Of course, we had those attacks on the tankers that the U.S. blames on Iran. The Iranians are saying it wasn't them. The shooting down of a U.S.
drone by the Iranians that they say infringed into their airspace.
So, really, it looks as though the U.S. and Iran really in a deadlock there. And you know, I've been through the Strait of Hormuz on a U.S.
aircraft carrier once and I can tell you, it is an extremely tight waterway where those two forces are in very, very close proximity -- Julia.
CHATTERLEY: Absolutely, and pivotal to the global oil industry, as you've pointed out, too, so everyone watching this very, very closely and a
sequence of events and Iran denying involvement in all of them at this stage.
There has been so many mixed messages, I think whether it's from the US government, from Iran here, what hopes at this stage of seeing Iran coming
back to the table, a fresh agreement over nuclear development here in exchange for a relaxation of sanctions? Because ultimately, that's what
both sides would like, it's how you bring them together.
[09:05:22] PLEITGEN: Yes, I mean, absolutely, the Iranians would certainly want the relaxation of sanctions, and the U.S. obviously says that it wants
guarantees that Iran is not going to build a nuclear weapon.
The Iranians, of course, for their side are saying, look, in general, they don't want to build a nuclear weapon. And of course, they have a nuclear
agreement that the Iranians are still a part of.
I think right now, at this point in time, it's going to be very, very difficult for these sides to get back to the negotiating table, especially
with incidents like the one that we saw yesterday with the USS Boxer taking place.
But at the same time, you do have both sides saying they want to return to the negotiating table. Of course, you have President Trump saying he is
for negotiations without preconditions. The Iranians are saying as long as those sanctions are on Iran, that is a precondition.
And yesterday, you had Iran's Foreign Minister, Javad Zarif come out and say, look, the Iranians would be interested in having an agreement with the
United States where they would actually allow more visits to their nuclear sites, also sites that so far have been undeclared.
But what they want then, is permanent sanctions relief from the United States and that certainly seems like a pretty difficult proposition there
for the U.S. -- Julia.
CHATTERLEY: Yes, step too far for the White House, at least at this stage. Fred, fantastic to have you with us. Thank you for that.
All right. Let's move on now to our second driver, and as I mentioned Microsoft on Cloud 9, a blowout quarter for these guys, based on the Cloud
division performance here. Matt Egan joins us now.
Matt, in fact, the Cloud Azure division creating more revenue than any other segment for these guys, and this is the fastest growing segment, so
they must be very pleased.
MATT EGAN, CNN BUSINESS LEAD WRITER: Absolutely, Julia. Microsoft -- a company that many investors feared was dead money earlier this decade
continues to be one of the brightest stars in Big Tech.
Now, we know that companies love to guide low and then just narrowly beat expectations, but Microsoft really had a monster beat here. Its revenue
exceeded expectations by nearly a billion dollars. Obviously, that is very impressive. It speaks to not just the momentum here, but really the scale
of Microsoft and Satya Nadella's decision to bet big on the Cloud continues to really pay off.
Now, Microsoft's Cloud -- Commercial Cloud Division -- increased revenue during the quarter by 39 percent, as you mentioned, to $11 billion. The
Azure Cloud Unit by itself grew revenue by a very impressive 64 percent, which believe it or not, is actually a deceleration from the prior quarter.
Now, Microsoft also guided really, really strongly as well. They're predicting double digit increases in both revenue and operating income for
the fiscal year that just began July 1.
Wedbush Securities put out a research report saying that this is, you know, an absolute blowout quarter across the board without any blemishes, and
they actually predicted that the Cloud party in Redmond may just be getting started.
Now, if you want to find a negative here, and it's not easy to do that, it would be gaming. The Video Game Unit revenue was down by 10 percent. The
Xbox hardware revenue fell by 48 percent due to some tough comparisons from the year before.
But Julia, all in all, clearly, Wall Street is still very bullish on Microsoft because, one, of the Cloud and two, unlike some of these other
Big Tech companies, Microsoft's antitrust headaches are of course in the rearview mirror.
CHATTERLEY: Yes, they've been there, done that and bought the t-shirt, really taking the fight here to Amazon, the Cloud, which is interesting.
On this point, I want to talk jedi, not to be mistaken for anything to do with "Star Wars."
We're talking Department of Defense, government contracts here because President Trump has been asked about this a couple of times already this
week. Who is going to award or who is going to get these contracts and whether or not the President himself will intervene? And it feels like an
Amazon versus Microsoft face off here. What do we know about this?
EGAN: That's right. So, all of these big tech companies would love to get a piece of this $10 billion Pentagon Cloud contract, but really, it is just
down to Amazon against Microsoft, because IBM and Oracle have already been ruled out.
Now, Amazon is the Cloud leader. So, you would think that it maybe it would go to them, but we should not rule out Microsoft here.
President Trump was asked about this yesterday and he told reporters he is going to look very closely at the bidding contract. He said some very
impressive companies have been complaining about the bidding contracts. He named Microsoft and IBM and Oracle. He did not name Amazon is one of the
companies that had been complaining though.
So, Julia, you sort of wonder if Microsoft has a really big advantage here, as far as this jedi contract and the fact that it's not led by Jeff Bezos,
who of course is an adversary, a rival of President Trump.
[09:10:10] CHATTERLEY: Yes, expect lots of questions if they do get awarded this contract, of course, exactly for that reason. Matt Egan,
thank you so much for that.
All right, on to our next driver now, Boeing saying, it would take a $5 billion hit charges related to the 737 MAX jet crisis. The shares are up
in their premarket trading. Clare Sebastian joins me now.
I mean, it's a whopping great sum, Clare, here. But for me, the assumptions being made by Boeing are almost a bigger issue here in that
they're expecting these jets to be back in the sky in the fourth quarter of this year. Bold assumption at this stage.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, bold, Julia, especially given how fluid this situation still is, but you're right, these are big
numbers and the costs do seem to be mounting for Boeing when it comes to the 737 MAX crisis.
Let's take a look at the bill that they've talked about so far. That $4.9 billion charge, they say mostly related to customer compensation and
concessions; add to that, also announced yesterday $1.7 billion in costs related to production delays, also another -- on top of another billion
they announced in the first quarter.
And they didn't even mention yesterday, Julia, the $100 million fund that they've set up to compensate customers. So, the numbers really are
growing.
But as I said, this is extremely fluid. I think it's telling that the company hasn't updated its 2019 guidance yet. They said again, yesterday,
they're not ready to do that. We've got a lot of wildcards. They haven't presented the software fix to the F.A.A. yet, the Boeing official has told
CNN to expect that around September, and after that, there are even more uncertainties. What will the global regulators do? Will they follow in
the footsteps of the F.A.A.? So, there's a lot of uncertainty around these forecasts.
But I think, the reason why we see this stuck up today is that Boeing is trying to get out in front of this to kind of ring fence the risk around
this problem and to reassure investors that it's doing that.
CHATTERLEY: Yes, you make a great point. I mean, it was down a couple of percentage points yesterday. I guess, that's the only joinder here. But
to your point, I think as well, the estimates here from analysts are so wild at this stage, no one can really predict when they're going to get
these jets back up into the sky.
So, the fact that they're actually making provisions, taking charges and saying, look, even if we're going to -- you know, pay out this money over
numerous years, but how you're going to try and get in front of it and take a big hit now?
SEBASTIAN: Yes, I think that's a reflection of also how they expect to compensate customers. I don't think it'll just be cash payouts, it'll also
be in the form of potentially reduced price tags for the planes they haven't delivered yet, reduced costs of parts and perhaps even services.
So, there's a lot of different ways that they can do that. But look, the airlines are struggling, the timelines have been slipping as to when the
flight cancellations are going to end, the U.S. airlines have pushed out their cancellations now to the beginning of November.
We've also had recently from Ryanair in Europe that said it might even have to close some bases because of the delays in these deliveries. The
airlines, of course, don't forget are also facing pressure from the pilots, many of whom are flying these 737 MAX planes and hadn't really been working
since the planes were grounded in March. They've also launched some class action lawsuit.
So, there's a lot of kind of trickle down pressure here, and I think that's why that there is uncertainty around these forecasts -- Julia.
CHATTERLEY: Yes, absolutely. Clare Sebastian, thank you for that. All right, it's been 50 years since the first man walked on the moon and there
are celebrations planned at NASA's Mission Control in Houston. Rachel Crane is there for us.
Rachel, what a time to be there, to be part of the celebrations. Talk to me what's planned, and what it feels like?
RACHEL CRANE, CNN BUSINESS INNOVATION AND SPACE CORRESPONDENT: Well, Julia, first I want to just stop and pause and revel in the beauty of this
incredible rocket behind me.
Now, this is a Saturn 5. It's the same kind of rocket that flew all the Apollo missions, and of course, put Neil Armstrong and Buzz Aldrin on the
moon nearly 50 years ago. And while it's on its side, right now, when standing upright, it's as tall as a 35-story building. So, just to give
you a little bit of perspective.
And when it was fully fueled up, it weighed over six million pounds, had over seven million pounds of thrust. But of course, most of the rocket was
comprised of fuel. The bit that was really important when they were in space was this end bit right here, the brown portion being the command
module where the astronauts were housed.
And of course, this week, is a time that people all over the world are taking stock of this incredible achievement. Because, of course, this was
a huge win for NASA and America. It really was an achievement for humanity.
So, people from all over the globe, in fact, 45 different countries are coming here to Johnson Space Center to take part in the celebrations and
the galas, all of the events surrounding this historic achievements -- Julia.
CHATTERLEY: Absolutely. And of course, what we've seen in just the last few weeks is the United States once again, saying look, we're going to put
a woman on the moon, we're going to get to Mars. The United States, I think back here wanting to lead the charge to get us back up into space and
not take anywhere near 50 years to at least have the conversation and get doing it.
[09:15:02] CRANE: That's right. You know, NASA recently announced the Artemis program was going to be moved up from 2028 to 2024. So, if all
goes to plan, a man and a woman will be on the moon in just a couple of years.
So, a lot of excitement surrounding you know, the new commercial space race, but also NASA's own plans to once again return to the moon and use
that as a stepping stone to get to Mars. That's always been NASA's ultimate objective to get to the Red Planet.
So, once again, you know, an incredible, exciting week for people to relive the historic achievement of going to the moon, originally, in 1969, nearly
50 years ago, but a lot to look forward to in the near future -- Julia.
CHATTERLEY: Absolutely. And what an incredible backdrop, too, but Rachel Crane, I'm very jealous of you today. Have fun. Now, speaking of rockets
and moon shots, I could be heading to space as a journalist, at least the administrator of NASA didn't say no when I practically begged him and
didn't really give him a choice actually. That fun interview coming up in around 30 minutes' time.
All right. Let me bring you up to speed now with some of the other stories that we're following around the world. The German Chancellor say she
stands in solidarity with the United States Congresswomen targeted by Donald Trump's racist tweets. Angela Merkel say she's distancing herself
from the attacks and said America strength lies exactly in the fact that people from different backgrounds come together as one nation.
CNN has learned the game plan U.S. House Democrats plan to use for Robert Mueller's upcoming testimony. My apologies, they've got the game plan
House Democrats plan to use for Robert Mueller's upcoming testimony. The focus will be on several instances of potential obstruction of justice by
the U.S. President, as laid out in a Special Counsel's sweeping report. Democrats will also press Mueller on contacts the Trump campaign had with
Russia.
Police in Japan have identified the man suspected of starting a devastating fire that killed 33 people. They say he suffers from an unspecified mental
illness. He is now sedated in a hospital, but is not under arrest. The deadly fire at Kyoto's Animation is the country's worst mass killing in
almost 20 years.
All right, we're going to take a quick break here on FIRST MOVE, but up next -- ban or a bargaining tactic, our exclusive interview with Huawei's
Chief Security Officer.
And AB inBev canning its IPO for now, but getting a cash injection by selling its Australian business for billions of dollars. Stay with us here
on FIRST MOVE.
(COMMERCIAL BREAK)
[09:20:40] CHATTERLEY: Welcome back to FIRST MOVE live from the floor at the New York Stock Exchange where we are looking at a solidly higher open
for U.S. stock markets this morning.
Blue chips and tech names like Microsoft, of course looking set to outperform the debate. Of course, continuing over what kind of rate cut we
get from the Federal Reserve at the back end of this month.
The debate will continue. I'm sure, we'll talk it through in a second. But remember, the ECB is also meeting the European Central Bank next week.
Do they give more guidance on stimulus?
South Korea, South Africa, Indonesia -- all cutting rates this week. Global stimulus is the phrase. Microsoft shares, as I just mentioned, set
to be higher up almost three percent premarket, so we'll keep an eye on those two. Lots of discuss.
Fortunately, Julian Emanuel joins us now. Chief Equity and Derivatives Strategist at BTIG. Julian, great to have you with us.
JULIAN EMANUEL, CHIEF EQUITY AND DERIVATIVES STRATEGIST, BTIG: Always great to be here.
CHATTERLEY: So, you said months and months and months ago, way before anybody else that you thought the Federal Reserve would cut rates twice
this year, and now everybody agrees with you, I think. Some perhaps thinking a bit more here.
EMANUEL: Yes, no, I mean, it's amazing that three months later, we find ourselves almost seeming hawkish, when people thought we were kind of crazy
back in March and April.
We think actually that sentiment is a bit overdone, 50 basis points on July 31st would be a very difficult message for the markets to understand.
CHATTERLEY: Well, I mean, they are starting to price it and obviously we had the confusion yesterday over some rhetoric from the Federal Reserve.
We spoke to Jim Bullard at the St. Louis Fed yesterday, and even he as a dove said, look, 50 basis points, half a percentage point in July is
overdone at this stage. What's the market thinking here?
EMANUEL: The market is sort of addicted to this notion of easy money. And the reality is, is that a rate cut here is not a vaccination against the
global pandemic. It's a flu shot. Okay. It's basically something to keep the economy on track to help buoy sentiment. And, you know, sort of spite
off the psychology that a flat yield curve is putting in people's minds with regard to a recession.
CHATTERLEY: Recession, right. We talked about that, too. But actually, one of the other things that stood out for me was just how bearish, how
concerned he was about trade, and the idea that even if we get a U.S.-China trade deal this year, it doesn't mean the trade tensions go away, either
between the United States and China or other countries. As far as they're concerned, trade tensions are here to stay.
EMANUEL: Well, you have to go back to last year to fully understand that the fact is, the Fed made an incorrect calculation that a trade war would
be inflationary. It has never been inflationary, it is not inflationary. What tends to happen is that the volume of activity slows down.
CHATTERLEY: Right.
EMANUEL: In this case, what you're seeing is global supply chains being disrupted, and those things don't fix themselves in weeks or months, they
take quarters.
So, the residual effect, even if you do get a deal goes on into 2020. There's a lot of adjustments.
CHATTERLEY: So, talk to me about your S&P 500 target, the 3,000 target this year, because I mentioned just coming into this interview, it's not
just about the Federal Reserve supporting the economy and the markets inadvertently. Other countries are now using the opportunity to cut rates,
emerging markets, Europe, lots of Central Banks here are stimulating.
EMANUEL: Well, we think about our 3,000 price target a lot in the way we thought about our Fed call. When we stuck to our guns in January at the
depth of the market ...
CHATTERLEY: You were right.
EMANUEL: ... people thought we were a bit crazy. Now, we're here, from our point of view, you've priced in Fed easing, perhaps too much, the nice
thing is that earnings are actually coming in better than we expected, which is a positive and bodes well for the rest of the year.
But look, we've got a lot of geopolitical risk on the table, whether it's in Washington talking about the budget and the debt or Brexit or what have
you; and so for us, it's a time for the market to pause and figure out where those risks are headed.
CHATTERLEY: So, are you saying that your 3,000 target assumes everything goes smoothly on that front? I mean, Brexit is one you just threw in
there, but we don't know at this stage and you could be increasingly alarmed again at the risk of perhaps some kind of messy no deal scenario
later on this year.
Are you assuming that all those risks don't materialize, and then the market can get to 3,000?
[09:25:06] EMANUEL: Well, what we're assuming is that you sort of have what you've had for weeks and months and almost years, if you're talking
about Brexit, a kick the can situation, but to realistically think that all of these issues will go unresolved one way or the other into the end of the
year is probably naive.
So, what we said is, you know, if things break the right way on these issues, you could overshoot that target to as high as 3,400. But we really
want to see how things develop, and investors sort of a lack of activity in recent weeks, they're sending that same message.
CHATTERLEY: I mean, you also said, look, a pause at this stage just to sort of consolidate, consider where we are at this stage and what we know
and what we ultimately don't know here. You also said in terms of an investor mindset, you say to clients, look, if we see a 10 percent or 15
percent pullback you are a buyer, you're going to buy on dips as we call it. Explain to me how we could see a 10 percent or a 15 percent correction
to even have to be in a position where you're looking at then loading up the gain.
EMANUEL: Sure, well, if we've learned anything over the last two years is that volatility swings and ebbs and flows, and in fact, if you look at the
fourth quarter of last year, there wasn't really that much of a fundamental rationale for the market to go down almost 20 percent.
And so from that point of view, what we tell people is try and take emotion out of it. If at 3,000 in the S&P 500 you feel like your stocks are --
you've got a little bit too much exposure, trim back to the sleeping point and find yourself because it's worked for 10 solid years, down 10, down 15
percent. You shouldn't be defensive, you should find a way to play offense.
CHATTERLEY: And that's the key. Julian Emanuel, thank you so much. Always great to have you on the show and Happy Friday.
EMANUEL: Thank you.
CHATTERLEY: The market open is next.
(COMMERCIAL BREAK)
[09:30:00] CHATTERLEY: Welcome back to FIRST MOVE. Lots of happy faces and shouting and clapping here this morning at the New York Stock Exchange.
We have liftoff for the final session of this week.
U.S. stocks making gains as we expected. The first week of earnings, 10 percent of the S&P 500 reporting of course this week. Earnings right now
beating by almost seven percent. So far, a higher rate than over the past three years, but remember, as we keep reiterating, expectations had been
materially lowered coming into this earnings season.
One stock we are watching though, AB InBev shares are surging as the company announced it is selling its Australian business for some $11
billion just days of course after abandoning its massive Asian IPO. Hadas Gold is on the story for us. Hadas, talk about the sale of the Australian
business, a lower growth business, so good news for the company, but also some hints perhaps that we are establishing that Asian IPOs. Talk us
through it?
HADAS GOLD, CNN BUSINESS REPORTER: Yes, Julia, if you're a fan of Fosters or Victoria Beers in Australia, then they're about to get a new owner,
Asahi, the Japanese beer maker who is buying that part of AB InBev for about $11.3 billion.
Now, this comes on the heels of that failed IPO for AB InBev of a stake of its Asian business. They pulled that after some investors -- after
investors clearly didn't embrace the pricing of the valuation of that stake and it would have been probably the biggest IPO of 2019.
So, it's big news that it was pulled, but now we suddenly see the sale. Now, AB InBev said that Asahi had tried to buy this part of AB InBev
before, but had failed to do so. But this sale, Julia, is all about trying to get down that more than $100 billion debt that AB InBev had after a
decades' long acquisition spree. So for them, that's where this money is going to go through, just helping to pay down the debt.
Now for Asahi, this deal actually makes them a very big brewery. Now AB InBev is still the world's biggest brewery. But for Asahi, this is good
for them. It makes them one of the biggest brewers. Now, "The Wall Street Journal" is reporting that AB InBev is still exploring plans to actually
sell off more parts of its Asia business. So, that is one thing to keep in mind.
And although the IPO was pulled last week, AB InBev is signaling that it could possibly return to the idea of course, provided that it can be
completed as they said at the right valuation -- Julia.
CHATTERLEY: Yes, as you point out there, the key here, getting that big balance sheets under control. Hadas Gold, thank you so much for that.
All right, we are going to take a quick break here on FIRST MOVE once again. But up next is the U.S. Congress moves to strengthen its power over
Chinese tech giant, Huawei. We bring you an exclusive interview with the Chinese tech company's Chief Security Officer. Up next. Don't make a
move.
(COMMERCIAL BREAK)
[09:36:06] CHATTERLEY: The U.S. Congress is moving to block President Trump from unilaterally relaxing restrictions on Huawei. It's introduced a
bill to require a vote in both the House and Senate before curves on the tech Chinese tech giant are eased. The timing here is key.
"The Wall Street Journal" reported Wednesday, the trade talks between the two countries at a standstill over Huawei despite the denials of this by
Treasury Secretary Steven Mnuchin, Congress fears the ban could be used as a bargaining chip with Beijing.
Joining me now is Andy Purdy, Huawei's Chief Security Officer. He has also worked at the heart of U.S. government. He was a member of the White House
staff that drafted the U.S. Cybersecurity Strategy back in 2003. Then he went to the Department of Homeland Security, where he led the National
Cybersecurity Division. Andy, fantastic to have you with us.
You've seen both sides, you now work for Huawei. You've worked at the heart of D.C. and obviously the government operations there as far as
cybersecurity is concerned. What do you make of the moves by Congress not only to restrict the President, but also to restrict patent sales as well
for your company?
ANDY PURDY, CHIEF SECURITY OFFICER, HUAWEI: Well, I think President Trump is struggling with his administration trying to protect America from voices
inside the U.S. and outside, and I think given the United States' vulnerability in cyberspace, I think the government is bending over
backwards to make America safe. But they're going too far.
We're going to have a direct impact on American customers of Huawei, and we spent $11 billion last year buying from American companies. And if we are
forced to go our way, we'll be okay. But in the long term, I don't know that Huawei will be looking back, and I think America will be hurt.
CHATTERLEY: I mean, you said it could cost $30 billion for Huawei if we ultimately see this ban enforced, is that right?
PURDY: Well, we are projecting up to a $30 billion reduction in our projected revenue growth if we're not allowed to buy from American
companies, which, as I said, we're not sure if the impact is going to be that great, but we know the impact on American jobs is going to be very
significant, and it's going to affect the whole global ecosystem.
CHATTERLEY: I mean, you said $11 billion there is what you bought in 2018, so, we can quantify the impact. There are companies -- obviously Intel,
Qualcomm, Google -- that have felt the impact as a result of this restrictions, but "The Washington Post" today is reporting that the White
House is pulling those Big Tech giants together to talk to them, arguably, because they're saying to the government, look, this is going to impact our
business. It is impacting our business. Do you know anything about that meeting, if that meeting is taking place?
PURDY: Well, we just learned about it in the press accounts today. It's not surprising. We would have expected and expect that our suppliers would
be reaching out to government because if we're going to be allowed to buy from American companies, it's because American companies want to sell to us
not because we want to buy from them.
CHATTERLEY: What conversations are you having with suppliers? Are they saying that to you, look, we trust your technology?
PURDY: Well, we're talking about two different things. They are our suppliers. So, they certainly have no question that what they want to sell
us is not going to put America at risk.
CHATTERLEY: So, they're not taking a view.
PURDY: That's right, and so the real controversy is about our customers in the United States and around the world. And we believe there are
mechanisms like Nokia and Ericsson use to address the risk that provides assurance and transparency.
CHATTERLEY: Nokia is an interesting one, because they have a joint venture with Shanghai Bell that's wholly owned by the Chinese government. I mean,
we could argue that Nokia isn't a Chinese company and therefore the treatment here is different, but you're saying the treatment here of Nokia
and Huawei is unfair, is that what you're saying?
PURDY: Well, what we're saying is that blocking Huawei is not going to make America safer, and there are mechanisms that need to be put in place
to look to make America safer.
The bad guys can hack into Nokia's networks, Ericsson's networks and so forth, so we need to make sure there are mechanisms so that whatever
products that are used in the United States have gone through independent government moderate evaluation to make sure we're safe.
[09:40:10] PURDY: And remember, the telecom operators are the ones who operate the networks, and there's close oversight with them as well. They
manage the risk effectively.
CHATTERLEY: I mean, the bad guys here in the United States is China. And I guess their argument would be, China is far more likely to tap into
Huawei's networks or use Huawei's equipment than it is to go to Nokia because you guys won't put your hands up and say, "Hey, China has asked us
to hand over this information," or "It is allow us to create back doors," because if you did, you haven't got a business.
PURDY: Well, there's some who think that the one of the reasons is that the United States government wants to easily be able to hack into equipment
around the world and perhaps they fear, we can do it. But in terms of making America safer, there are mechanisms we can use to show that America
is safe.
CHATTERLEY: Are the Chinese government talking to you about those risk mitigation techniques? And what are they specifically? Because we're
talking about two things. We're talking about hardware that Huawei produces -- phones, laptops, for example, or 5G networks. Because what
we're seeing in Congress is them saying actually, if we allow Huawei to be involved in the United States development of 5G networks, they could
ultimately be paralyzed by a bad actor, China acting through your company.
PURDY: Well, the people speaking out either don't know or refuse to understand the way that telecommunication networks work. They look at the
U.K., before U.K. operators have said that despite submissions with our software that we're going to improve, they feel very comfortable using
Huawei products because the telecom operators help make the various countries safe.
CHATTERLEY: But the U.K. is separated into core and noncore and they're still pushing their next Prime Minister to make a decision on this.
The United States is saying there is no difference between core and noncore as far as Huawei is concerned. You are vulnerable to demand orders of
passing over information spying from the Chinese government. Can you resist that? As a Chinese company, can you resist that?
PURDY: Oh, absolutely.
CHATTERLEY: How?
PURDY: Because we use the example, if we don't have data, we can be forced to turn it over. And the fact is there are mechanisms you can put in place
that can guarantee that whatever data we touch will be perfectly auditable and visible. So, we're not able to access the data without it being known.
And secondly, and this is a potential risk with all the equipment of all the vendors, there are mechanisms to test the products to look for back
doors, and that's what the principal deputy -- the Director of National Intelligence Agency said, he said, I can test for that.
CHATTERLEY: Is it critical, though, to assume that there will be no back doors introduced that when the testing takes place, that you as a company,
under the orders of China -- Chinese government -- don't provide samples that have no back doors? Is it possible to work around these?
PURDY: I don't assume anything. I believe we have to not trust anybody and that we have to make sure they are mechanisms that are proven effective
to make sure America is safe.
And particularly with the role of the operators, the AT&Ts and Verizons of the world, we can be sure that we're going to be safe.
CHATTERLEY: Is the U.S. government trying to verify this? Or are you just in a situation where you feel like you're caught in the middle of a far
bigger battle over a trade war, and actually, the people that could verify could look at what you're offering here to mitigate the risks on doing it
because they don't want to get involved at this moment given the geopolitical concerns?
PURDY: Well, I think the experts know the mechanisms that can be successful, and part of our point is, block Huawei if you must. But let's
do what's necessary to test all the other products because the bad guys can hack through those. Let's make sure we're safe.
CHATTERLEY: Do you have government workers or those that have connections working at Huawei? Because this is an accusation from Professor Balding
who works at Fulbright University in Vietnam. He said he has got -- and found connections between your workers and Chinese government entities.
PURDY: Well, look at American corporations and the connections between former and current military people in terms of American companies. So my
point is, it doesn't matter who the employees are, we need real mechanisms that can prove we are not subject to the undue influence of the Chinese
government.
CHATTERLEY: Is that a yes? Is that a yes though? Do you have government workers working at Huawei?
PURDY: No.
CHATTERLEY: No. Categorically no.
PURDY: Every company in China, whether foreign or domestic has to have a Committee of the Communist Party because they have no operational control
over us, just as they don't have any operational control over Nokia operating in China.
CHATTERLEY: Okay, so you can separate the Chinese government from your operations. Who owns Huawei?
PURDY: It is privately owned.
CHATTERLEY: Its workers? It's a union of workers.
PURDY: The workers. We have 97,000 workers. Each May, we get our distribution and we're just like a privately owned company in the United
States in the same respect.
CHATTERLEY: You're not influenced by the Chinese government in any sense?
PURDY: We are not controlled or influenced by the Chinese government in any sense. We are proud to be a privately owned company and we operate
that way. We maintain our distance from the United States government and other governments.
[09:45:04] CHATTERLEY: How do we overcome this suspicions right now, the concerns? How do you do that? Because there will be people watching here,
we have an international audience that are looking at Huawei at this moment, whether it's looking to buy a mobile phone or a laptop and saying,
"What operating system is this going to be able to use going forward?"
What's your message about the efforts that Huawei is trying to take here, to say, "Look, we aren't influenced by the government, we won't be a
problem for U.S. technology going forward." How do you convince people?
PURDY: Well, it's three things. First of all, let's not throw the baby out with the bathwater. We should be allowed to buy all -- most, if not
all of the $11 billion in products. So, let's protect American companies.
Secondly, we're not allowed to sell our mobile devices through the carriers. No one has ever indicated what the security risk. We're on the
Android platform. If there's a problem with our phones, we need to raise the security of the entire Android platform.
And regarding our customers, look at the success of our company. Does it matter to us how much money we make in the United States? Not really.
Though we have 40 rural customers, serving rural America who depend on us for high quality service and we want to help protect those customers.
CHATTERLEY: Does your company survive if America cuts you off? Can it survive?
PURDY: What?
CHATTERLEY: Can Huawei survive if America cuts you off?
PURDY: Absolutely. The worst projection is it might cause a decrease of our increase in revenue of $30 billion this year. We'll be fine. We're
not publicly traded. The leadership is not going to get kicked out. We're going to be fine. But is America going to be fine?
CHATTERLEY: Andy, fantastic to chat with you. We'll get you back, no doubt. Andy Purdy here. Thank you so much.
All right, on the 50th anniversary of the moon landing, we will speak to the man who is making sure we are moon bound again, and really soon. Stay
with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back FIRST MOVE. Saturday will mark 50 years to the day that a man from Ohio took a step that would change the way humanity
views its place in the universe. Even now, the idea of a person walking on the moon is spellbinding. So, why is it taking us so long to seriously
discuss returning? Well, that's what I asked NASA's administrator, Jim Bridenstine.
(BEGIN VIDEOTAPE)
JIM BRIDENSTINE, ADMINISTRATOR, NASA: In the 1990s, NASA had an effort to go back to the moon and onto Mars. It was called the Space Exploration
Initiative. But it took too long and it costs too much and administrations changed, priorities changed and the program got canceled.
Then in the early 2000s, we had the vision for space exploration. Again, it took too long. It went over budget, and ultimately, the administration
changed and it got canceled.
This is why President Trump and Vice President Pence -- President Trump created the National Space Council and he put Vice President Pence as the
Chairman of that Council, and they have said, we want to accelerate the path. Why? Because if instead of a 10-year program, if it's a five-year
program, it reduces the political risk.
So, that's what we're trying to do here. We're trying to go to the moon sustainably. In other words, we're going to stay with international
partners with commercial partners, utilize the resources of the moon.
[09:50:07] BRIDENSTINE: We discovered in 2009 that there's hundreds of millions of tons of water ice on the south pole of the moon. Well, water
ice represents water to drink, air to breathe. And in fact, rocket fuel. H20, if you crack it into hydrogen and oxygen, that's the same rocket fuel
that power the space shuttles. It's the same rocket fuel that will power the Space Launch System, which is going to take our astronauts back to the
moon within five years.
CHATTERLEY: And you're saying not only that, but on the moon and then use that effectively as a launch pad for our progress to Mars.
BRIDENSTINE: To Mars. That's right. The President has been clear, he wants the agenda to be Mars. And so what we're using the moon for is a
proving ground. The glory of the moon is number one, we can learn how to live and work on another world for long periods of time, and it's a three
day journey home.
Apollo 13 taught us that if something goes wrong on the way to the moon, you can make at home. If something like that happened on the way to Mars,
it would be over. The challenge with Mars is that Earth and Mars are only on the same side of the sun once every 26 months.
So, when you go to Mars, you have to be willing to stay for long periods of time. The moon is where we can learn how to do that, so that ultimately we
can make that journey to Mars.
(END VIDEOTAPE)
CHATTERLEY: They say in space that no one can hear you scream, and while the risks we face there are clearly not as terrifying as the one Sigourney
Weaver dealt with and things like "Alien," that doesn't mean they are not serious. Whether its space debris, or potential threats of satellite
communication, I asked Jim to explain.
(BEGIN VIDEO CLIP)
BRIDENSTINE: Because space is so existential to our existence. We talk about banking, every banking transaction in the United States requires a
timing signal from GPS. And by the way, that's not just the United States, it is quite frankly, globally in the industrialized world.
CHATTERLEY: Right.
BRIDENSTINE: The timing signal from GPS. But the power -- electricity on the power bread requires the regulation of the flows, requires a timing
signal from GPS. The flows of data on terrestrial wireless networks for your cell phone requires a timing signal from GPS. So, here's the
challenge.
CHATTERLEY: Satellites.
BRIDENSTINE: That's right. So, some of the enemies of the United States, I should say, some of the competitors are developing capabilities that
could destroy those satellites, and its anti-satellite missiles, its co- orbital anti-satellite capabilities, and if they were to do that, it would be an existential threat to the United States of America.
Imagine, no banking in America, no milk in the grocery store. Within days, there would be chaos. That's the threat here that has to be mitigated,
which is why the President of United States, President Trump is so focused on the Space Force. And I will tell you, I'm a big advocate of that. I
have been for a long time, even when I was in the House of Representatives. He is doing the right thing with the Space Force, because we have to make
sure the enemies of the United States know they will get an advantage by destroying space.
CHATTERLEY: I mean, there are people that would look at this and say --
(END VIDEO CLIP)
CHATTERLEY: The moon might have not have changed that much over the last 50 years, but Planet Earth has, and that's something NASA is keen to take
advantage of -- putting international cooperation at the heart of its vision, even if the U.S. still leads the pack.
(BEGIN VIDEO CLIP)
BRIDENSTINE: We've had great astronauts from around the world on the International Space Station, and it's also true that we've had experiments
on the International Space Station from 103 different countries. It is an amazing tool of diplomacy.
And ultimately, we want to take what we've developed, what we've designed from an international diplomacy perspective, take it all the way to the
moon. We now have a new program called Artemis, named after the twin sister of Apollo. And now when we go to the moon, unlike the 1960s, we
have a very diverse, highly qualified astronaut corps that includes women.
So, we want to build what we call the gateway and orbit around the moon, think of a small space station and orbit around the moon, with our
international partners, and then have reusable landers that go back and forth to the gateway for a sustainable lunar presence, proving the
technologies, proving the capabilities for an eventual mission to Mars.
CHATTERLEY: Is the first woman on the moon going to be an American there?
BRIDENSTINE: Without question. I will tell you -- I can tell you who I work for, and the answer is yes. And the President and the Vice President
are very clear, we're going to we're going to land on the moon within five years and according to the Vice President, he gave a big speech not too
long ago by the direction of the President, and he said the next man and the first woman on the South Pole of the moon will be Americans.
It's also true though that in the President's Space Policy Directive 1, he wants to go with international partners. The reality is, we're kind of the
gorilla in the room, because our budget is large. But we want to make sure that all of our partners are with us. And in fact, we want to grow the
partnership.
CHATTERLEY: I'm not an astronaut, but if you need any volunteers, I am putting my hand up right now. I love space.
BRIDENSTINE: I think we can arrange that.
CHATTERLEY: Great.
BRIDENSTINE: Remember, we now have commercial crew and commercial crew enables all kinds of opportunities for people that would not be your
traditional astronauts at NASA. So, there very well could be a seat for a journalist.
[09:55:17] CHATTERLEY: Where do I sign? Love. Thank you.
BRIDENSTINE: Thank you.
(END VIDEO CLIP)
CHATTERLEY: He didn't say no. Now, if you want to see a moon shot, take a look at the Dow from the day men landed on the moon until today. The Dow
was trading at just over 800 points in mid-July of '69. Since then, the Dow has risen more than 3,000 percent.
Well-known companies like IBM, Coca-Cola and Procter&Gamble were already in the Dow, but the blue chip average also contained long forgotten stocks
like Anaconda Copper and Swift & Company. Who?
The late 60s was also the height of the nifty 50 Investment Strategy. It was a basket of stocks that analysts urge investors to buy and hold
forever. Something like McDonald's and Pepsi have done well over the years, but if you bought and held some Nifty 50 companies like Eastman
Kodak, you would not be feeling so nifty today. They went bankrupt in 2012. Ouch.
That's it for the show. You've been watching FIRST MOVE, time to go make yours.
(COMMERCIAL BREAK)
[10:00:00]
END
