Motley Fool Money - Motley Fool Money: 02.07.2014

Episode Date: February 7, 2014

CVS makes a surprising announcement.  Twitter tumbles.  And Disney hits a new high.    Plus, Guardian technology editor Charles Arthur talks about Microsoft's new CEO. Learn more about your ad choices. Visit megaphone.fm/adchoices

If you're a small business owner, you already know what it takes to keep everything moving. You're juggling customers, invoices, and about 100 decisions every day. Thankfully, taxes don't have to be one more thing on that list. With Intuit TurboTax, you can get your business taxes done for you with a full service expert. TurboTax matches you with your dedicated tax expert. Who knows your industry understands your business write-offs and gives you the personalized advice your business deserves. upload your documents right in the app, hand everything off, and still feel like you're in the loop the whole way through. You can even get real-time updates on your expert's progress right in the app, which makes it so much easier to stay on track.

And you can get unlimited expert help at no extra cost, even on nights and weekends during tax season. Visit turbotax.com to get matched with an expert today, only available with TurboTax full service experts. Everybody needs money. That's why they call it money. The best thing in their life are free, but you can get them to the pond. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Full Money Radio show. Thanks for being here. I'm Chris Hill, and joining me in studio this week. From Motley Fool 1, Jason Moser, from Motleyful Income Investor, James Early, and from Motleyful Hidden Jems, Chief Investment Officer here at the Motley Fool, Andy Cross.

Good to see you guys. Hey, good to see you, Chris. Microsoft has a new CEO. TVS has a new policy, and Disney's got a new all-time high. We will talk big technology with columnist Charles Arthur. And as always, we'll share a few stock ideas to put on your watch list. But guys, we begin this week with the big macro. The jobs report for January is out. 113,000 jobs were added. That was lower than expected. But, Andy, the unemployment falls to 6.6%. And the U6, the broadest measure of unemployment, falls to 12.7%. That's the lowest. since November 2008. It seems, you look at the percentages, it seems like a pretty good report, but what do you think? Well, and stocks rallied on it, which was kind of surprising given the fact that the number was much lower than what the estimates going out there for. But there were some

good signs, like some of the manufacturing numbers were back. Construction numbers were up almost $50,000, so that was good. Some of the adjustments from December and a little bit from November kind of revised up there, which was good. But, you know, overall, it does show you that the that the unemployment number and the employment figures really are still not really robust. Frankly, I kind of expect that. Like, I think we're in this new paradigm. I've been saying this before that the employment picture is going to be a little bit less rosy because companies are so careful, including us here at the Motley Fool, on how you hire,

making sure you're very careful on allocating that capital to the right people and using technology as much as you possibly can to get out as much efficiency as you possibly can. James? And the idea is just, it's maybe not as good an unemployment number as we expect it, but it's not bad enough to provoke the Fed into further action, right? So it's like a kid who's bad enough just to get smacked with a wooden spoon, but not the belt. You know, the big punishment didn't come here.

We're saying. Exactly. As an example. Circairc. I mean, I think a spoon might actually hurt worse than a belt. Spoon can hurt, you know. Depends on where they hit you. Metal hair brush in life.

I think, I mean, we talk a lot about these numbers. No. Unemployment numbers. They tend to get revived. upward all the time. So I think it's probably more helpful to look, try to at least look past these numbers and more how they affect our economy, how they affect consumers. You know, and I mean, one thing I was looking at here earlier today, just to get a little bit of a better take on this, is just sort of the evolution of a credit-based economy. You look over

the past 40 or 50 years here in the United States, and you look at this chart of the personal savings rate, which, you know, at one time topped out over 14 percent, which was really nice. People were focused on saving and being prepared. But over time, particularly over the last 10 to 15 years, this number has just plummeted. And with a personal savings rate under 4% now, I mean, it just goes to show that when the hammer drops, there's a reason why so many people are feeling so much pain because they just don't have anything to really back themselves up here a bit of a time. The evolution of a credit-based economy? Yeah. Your morning research, that sounds like a semester-long college.

I'm a smart guy, James. Well, and don't forget also, the government payrolls continue to shrink, and that's having a big impact on the overall numbers. So, as the government pulls back, you know, that does have an impact on the employment figures. All right. Let's get to some of the company news this week. CVS, surprising the retail world by announcing it will no longer sell cigarettes or related tobacco products. James, this starts October 1st. They're getting praised for the move, saying that selling tobacco is inconsistent with their purpose of helping people on their path to better health. But if you're an investor and you're looking at CVS, you're asking the natural question, Why are you walking away from something that has been $2 billion in revenue every year?

Chris, even as an investor, and you know me. You know, I hate tobacco. I mean, I felt so good about this. I almost stay in my pants. I'm going to be a loyal customer from CVS all my life, all my Xanax, all my volume. I'm going straight to them. No, yeah, it's $2 billion out of $130 billion or so in sales. So that sounds bad.

But long-term, 60% of CVS's revenue comes from the prescription benefit or pharmacy. benefit stuff, corporations. So they're more of a health care company than we think. So this boads poorly in the short term, but it's much better in the long term. Plus, you get people like us talking about it. It's great. It's great PR. I think this is one of those purpose over profits thing. I think you're right. The short term, it doesn't look all that great maybe because they're sacrificing this profitability, this money. But yeah, in the long term, I think there's actually there's something to this. I agree with the move. I like it. Are we going to see others follow, and I'm thinking primarily of Walgreens? I think so. Walgreens actually has more storage.

in CVS. And even Obama put out a statement, commending CVS. Now, it's ironic. I guess he's going to have to send his helper somewhere else to buy his cigarettes. But I think we will see a trend here. Well, yeah, and this is actually CVS. I mean, this has been happening already. I mean, Target made some changes. So we have been seeing this already. So, but given the fact that CVS is trying to move into this health care area more, it's a natural fit. Disney hitting an all-time high this week after strong first quarter earnings, Jason, ad sales at ESPN up 10% toy sales up 24% record attendance at some of their parks. Was there any downside to this quarter? Nope. There was no downside to this quarter at all. Literally, I couldn't find any.

I think most of us here, at least two of us, I know, saw the movie Frozen, and they just have really hit it out of the park with that one. They're going to string that hit out for a long time and pluck a few characters out there and build their own storylines and new movies from that. that. But, I mean, top line growth of almost 10%, I think, just shows there is demand out there for what they're doing. And you're right. Every segment saw operating income up, you know, in double digits, which I think is indicative again. Not only demand, but the operating leverage this company has, particularly in like the park segment, where you're going to keep those things open anyway. So the more people that come, and the less you have to discount them, the more money they're going to make with it. But I think really, you know, we always talk about the movies.

They get the headlines. It's not the most profitable part of the business, but they do a great job of taking that, what they make in those movies and spreading it out to the other divisions there. And I think really the only things that I'm focusing on with Disney, it's two things. It's leadership with Bob Eager is going to step down in June of 2016. They want to let him kind of get this new Star Wars acquisition going, the Lucasfilm acquisition. So, I mean, it'd be nice to kind of keep an eye on how they're going to fill those leadership shoes there. And then, you know, you chimed in there on ESPN, and we know that is a crucial part of this business here today. That is definitely an industry that is ripe for disreferial.

I think there are a lot of people out there, a lot of folks trying to figure out how to disrupt it. Fox Sports, for example, is trying to, you know, take a little bit of that share as well. So that'd be something to keep an eye on. There's nothing that suggests they're in any trouble. You know, I was in Tokyo. I went to Disneyland, Tokyo with my son, and it was a Tuesday, like, middle of December, and it was packed. It packed with high school kids, too. Like, it's a school day. You wonder what other high school? It was good for Disney. Cross family going to Orlando in May, so I'm looking for tips. May. Who, who. As a shareholder, I thank both of you for that. Max probably got a few tips for you.

Yeah, our producer, Matt Greer is he's the man to see. I need help. The search is over, guys. Microsoft has named Satya Nadella as the CEO to replace Steve Bomber. He's 46 years old, a 22-year veteran of the company. Andy, right now he's heading up the cloud computing and enterprise divisions. Good choice? Well, I mean, I actually, yes, I think it is a good choice.

This has been a long search. They interviewed more than 100 candidates to kind of get the right fit for the third ever CEO here at Microsoft, which I own shares and we own shares here at the Motley Fool, you know, as well. I do like this fit. He, while people have classified him kind of as a little bit of a safe bed inside player, industry veteran, Microsoft veteran, he actually has a history of mixing things up at Microsoft, kind of breaking down barriers. He's very open with looking for alternative solutions.

he kind of made a lot of headlines went at one of the developer conferences. He pulled out of Mac and showed how you can actually develop iPhone applications apps tied to Microsoft's cloud services. So he is not afraid to kind of mix it up. He is very, he's much more reserved than Steve Ballmer, which I think is a great thing. He's a technologist veteran.

I think it's actually a good move. It is a huge job. He does have Bill Gates coming back into a little bit of a role as a technologist to help out there, which I think is a good thing too. So overall, I'm very positive on the move. I was going to say that was the thread of this story that surprised me, that Gates is stepping down as chairman.

I knew he'd step down eventually. I was just a little surprised he's stepping down this soon. And by his own account, he says he's going to be spending about a third of his time advising Nadella on technology. Is that a plus? I'm assuming it is. I'm also wondering how long he's going to do it, if it's just like for the first year or so,

because as he continues to sell off his shares methodically, pretty soon he's not going to have any financial interest in Microsoft. Well, that may be true. I think he still has the, what this shows, he still has the interest, which I think is very important. I mean, we saw this handover to Steve Balmer, who was a lawyer and an operating guy, and that just was never really a good fit. So here we have a technology leader coming back into lead the company,

along with the founder, kind of stepping into a role that is going to be a counselor to help him on technology. I think overall, that partnership, I think, is going to bear fruit for shareholders. Coming up, we'll give you an inside look at the stocks on our radar. This is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So, don't buy ourselves stocks based solely on what you're here. Welcome back to Motley Full Money, Chris Hill here in studio with Jason Moser, James Early, and Andy Cross. Shares of Green Mountain Coffee roasters up more than 30% this week after Coca-Cola announced it will be taking a 10% stake in the company

for the princely sum of $1.25 billion. James Early, I know you're excited about the prospect of a Coca-Cola machine and everyone's home now. Coca is an income investor recommendation, Chris. But yes, you're right. I do have a significant loathing for all things softer. I mean, I'm of two minds. On one hand, shipping water or derivatives thereof around has got to be one of the top 10 dumbest concepts of modern civilization, right? It's super heavy. It takes a ton of fuel to ship around. We don't need to do that. So that's great. But on the other hand, soda is cheap. Soda doesn't need to be made fresh like coffee. It can stay fine in a can or a bottle. So there's not really a financial need for this.

There's not really a functional need for this. I think it's more of a novelty play. So I don't know how big of a needle mover this is going to be. You know, Jason, it's pretty interesting. Once this got announced, shares of soda stream got whacked immediately after hours, and then you look at it, it's actually up about 10% since this news broke. Why the reversal? Well, I think it's really easy to look at this initial headline with Green Mountain and Coke and say, wow, that's just an endgame kind of press release there in the initial reaction was such. I mean, the stock was 10% down after hours. But take a second to think about that and recognize the fact that really Coca-Cola just basically, they're going to be.

They just validated that market. They just said, yep, there is a market opportunity there, and we want to pursue it. And so the story with Soda Stream for the longest time has been the United States market opportunity, potentially. And I mean, to James' point about soda, I think that's a very good one. And I think that one thing that makes these types of machines a bit more attractive is you can go beyond the soda and just, you know, if you like selt or water or just flavor it with some lime or limiter. You can make healthier options, which I think is very attractive. I think the biggest drawback for me on these machines to date, at least is the first. fact that you still have to go out there and buy the CO2 refills. I can't, you know, there's an

effort that has to be made there to still go out there and do that. So, you know, I think about it from like a, say if you have a gas grill on a propane tank that goes with that grill, where there's propane taxi that will deliver those tanks to your house. So I think that the company that can sort of address that last mile issue, whether it's UPS, FedEx, Amazon, Coke, whoever, if they can address that last mile issue and really make this as convenient as possible, that could be, I think, a real game changer. But there's something there. Let me, you seem familiar with this, Jason, more so than I am. So let me ask you this.

With these little pods, are you just making, like, latte-sized coax? I mean, has it seven or a single-serve, no. I mean, I don't have a machine, but it's a one-liter. It's, like, the bare minimum these days, right? The big gulp is, like, is, like, humongous? I think it's a one-liter bottle for soda stream. But, yeah, I mean, like Brian White, for example, has one, and he loves it. Jim Mueller has one, and they love it.

And I think that it's because of the options that it provides you. But, yeah, it's not like coffee, and that it's a single-serve. It's, you know, you make a liter bottle. Jason just never wants to leave a sofa. Exactly. You want to do the radio show from your sofa. I mean, there is a lot of truth in that statement. Shares of Buffalo Wild Wings down 9% on Wednesday after

fourth quarter revenue came in lower than expected. Andy, it didn't seem like that bad a quarter. Why the drop? It was a good quarter, and Jason talked a lot about this in Motley 4-1. I mean, it was actually, it was a very good quarter

when you look on it, especially if you look on a 13-week comparable basis, with both sales and earnings right in line. Basically what happened is there was one or two lines talking about next year with some rising costs, about increasing employment costs with minimum wage increasing. And maybe their growth rates, their earnings growth rates, may not be quite as high as they have been historically, which they've always been typically in the 20-25 percent range, which is outstanding.

But overall, when you look at the performance of the business, relative to where it is on a market multiple bases at 35 times earnings, maybe 25 times forward earnings. I think investors just started to see, well, maybe if the growth rates are slowing, that may not be good for the stocks. They sold it off. But overall, the company continues to excel on the operating basis. Chicken wing prices have come down dramatically over the past year. They were a record high last year. That's going to be a big benefit over the next quarter or two. But if they do have some rising employment costs down the road, that may impact some of the growth rates. And they have them now in the DC area. Is that correct?

Oh, yeah. They have one right up the street. up here in Crystal City? We had a two-day member event this week. It's actually the biggest event we've ever had here at the Motley Fool with members of our Motley Fool One service, Supernova, Pro, and MDP. It's really been great. And two of our members, Joan and Richard Morgan, are up from North Carolina. They're actually on the other side of the glass with our man, Steve Brodo.

So thank you so much. Long-time listeners. Thank you for being here. Let's bring in our man, Steve, as we get to the stocks on our radar this week. James Early, Steve's going to hit you with a question. I hope you're ready. What do you got this week? a good question Steve. Sebespi, I've mentioned it before. This is a Brazilian water and sewage company.

You know me. I like the sewage part, but they're both necessary. No one's going to stop flushing their toilet in a recession. 25% of Brazil's fresh water gets leaked out of the pipes before it gets to the destination. But thanks to Sebespi's efforts, that number is dropping gradually. So it's 51 or 50.1% owned by the state government. So nothing bad is going to happen to this company. I like it. What's the ticker symbol? S-B-S. And it's been beaten down with all this emerging market, you know, kind of fear. Steve? How does a private company have so much control over what usually is controlled by a municipality?

It depends. Actually, in the U.S., people think water is all public, but there are many, many privatized and increasingly more private water companies. The private companies just do a better and more efficient job of that. Jason, what do you got? Well, I'm glad we've figured out this whole Latin Steve Broido Twitter thing, because in honor of Latin Steve B, I'm going to go ahead with Twitter here, because what I feel like, They came with a good earnings quarter here. This was their first reporting as a public company. And I think that through all the noise, we saw a good pullback in that this stock really tanked because it was tremendously overvalued.

It's about the same size as LinkedIn. LinkedIn's going to bring in about twice the revenue as Twitter this coming year. But all engagement metrics, advertisers are realizing some return on those advertisements. I think there's a future there for Twitter. Steve? Just bought Twitter. Likelihood it exists in 30 years. I think Twitter does exist.

30 years, Steve, yes. Andy Cross? With the Super Bowl now a pass, I'm turning to the world's most popular sport, going to soccer, football around the world, international football, global football, and looking to Manchester United. Man U is a symbol. It's the world's one of the world's most valuable sports franchise. They report Ernie's next week. What's interesting with Man U right now is that they are struggling on the field for the first time in, like, 15 years, and that has a big, potential. has a very big impact on their revenue growth for next year. And so I want to hear how the business

leaders talk about, and they do have conference calls, talk about their performance on the field relative to the performance off the field for the investors. Soccero-Officinado. Steve Brito, question about Manchester United. What's the biggest mistake I can make playing soccer? Is there something I can do just terrible? Score someone, score a goal on your own team. But seriously. I would never do that. You probably would not see, yeah. Is there anything, just a tip for me? Head budding?

I mean, if you're unaware of the goalpost and you're the goalie, you ram your head into the side. That would be bad. And that has happened. Yeah, that is actually dangerous. Red cards. Red cards are pretty bad. Yeah, watch your rampant profanity.

You don't want to annoy the record. Oh my God, no, they swear all the time on the, I mean, they swear the refs, I think. I think it's terrible. I'm like, you know, there's no border between the reps and the players. Up next, we will head across the pond to talk with technology writer Charles Arthur. Stay right here.

This is Motley Full Money. Glory, glory, man united as the rest keep marching on. Glory, glory, man united. Glory, glory, man united. Glory, glory, man united as the rest keep marching on. Welcome back to Motley Full Money. I'm Chris Hill. Just a few weeks into 2014 and already we've had big news from some of

biggest technology companies in the world. Here to help us make sense of it all is Charles Arthur. He is the technology editor of the Guardian newspaper. He's also the author of Digital Wars, Apple, Google, Microsoft, and the battle for the internet. Charles, welcome back to the show. Hi, good to be back. So let's start with Microsoft, the big story this week, the new CEO, Satya Nadela. By all accounts, this seems like a guy who is highly respected, but some people are saying, you know what, they went the safe route. This was a safe choice to replace Steve Bomber as CEO. Do you think that is accurate?

And if it is, is he too safe a choice? I don't think he was a safe choice. I mean, he's been at Microsoft for 22 years, but he's come out of the enterprise and the cloud computing side, particularly. And that I think is, I mean, that's where Microsoft's, the enterprise, you know, the big businesses, that's where its strength is. That's where actually it makes most of its monies from its enterprise customers because they're the ones who keep on buying Windows licenses and they keep on buying Office licenses and they keep on buying Windows server licenses. But the cloud division is relatively new and that's where a lot of the growth has to be in the future. So having that sort of device agnostic approach where you're thinking more about how do we get onto lots of people's devices, how do we serve lots of people at the same time. I think that's actually an important skill to have.

And I think that coming out of those twin disciplines is possibly more useful. I mean, a lot of people ahead of this were looking at outside candidates. They were sort of saying that Microsoft needed a big shake-up. And I think that is true. they're also looking internal candidates and a lot of people were wondering if Stephen Allop, who came back from Nokia where he was running the handset business and the rest of it, whether he was going to be taking over his chief executive because he had experienced running the office division in the past. Clearly they've passed over him for Nadella.

And I don't think it's necessarily what you call a safe choice. And it sounds to me as though he's looking to shake Microsoft up. I think he wants to get rid of a lot of the politics that has frankly slowed it down in the past. Do you think the choice of Nadella indicates anything with regards to more consumer-facing devices? If putting Nadella in the CEO office gives any sort of indication as to where Microsoft is going with respect to tablets, with respect to phones, or any other device, for that matter? Well, I don't think it does. I mean, Steve Barmer last summer put out a memo about Microsoft, you know, and in terms of, memo, but you're saying we have to turn ourselves into a devices and services business,

which is fine as sort of as far as it goes, then you have to think about the fact that you're really either one or the other. If you're going to sell devices, you're going to be a bit like Apple, you make your money on the devices, and services are a sort of add-on to keep people interested in it. So iCloud, which provides free, is basically its add-on to keep people interested in the hardware, which is where it makes its profit. If you look at Google, Google provides Android to lots of handset makers,

and it provides it free, and then it makes its money from the services that it provides. So, you know, it monetizes people doing searches. It monetizes people sort of using mobiles in various ways. And you can sort of be one or the other bit. It's rather hard to sort of be in between. You can't be sort of a bit of a device maker, you know, making some money out of the device because you'll eventually get beaten by one of the other company which does it sort of to the Hilt. So, you know, a company which either like Google provides the services free or like Apple

makes the money on the devices and sort of has the services as a sort of sweetener. So I think that he'll have to think about what Microsoft wants to be. And I suspect that it's, that it would be better off, given its roots are in software, focusing on being a services company, which is, of course, where he's come from. He's come from the cloud computing side. And the expansion of what they're doing with Asia and all the other Microsoft Cloud computing services, to me that he'll look at trying to get Microsoft services onto more devices and possibly the Nokia handset business which they're buying. Maybe they'll just sort of run that pretty much at a break-even or even at a bit of a loss, rather as Google did with Motorola, which it is selling

off to Lenovo. You know, Microsoft can afford to run a mobile phone business that basically pretty much gives their handsets away if it can get those into enterprises and sell the more profitable services to them. One of the people who's going to be helping Nadella figure out the future of Microsoft is Bill Gates, who it was announced this week, moves out of his position as chairman of the board of directors and is becoming what is termed a technology advisor to Nadella. To me, that was more surprising than the choice of Nadella itself, the fact that Gates was giving up the chairmanship this soon, moving to this position.

And does this tell us anything about where they're going? Because there are some people out there, Charles, saying, well, look, if Gates is going to be a technology advisor and spending, in his own words, a third of his time doing that, then that's really just back to the future with Microsoft. They're just doubling down on Bill Gates. And that's not necessarily a good thing. Yeah, my feeling with Bill Gates is that he got a bit itchy being the chairman and watching things not quite go as he was. wanted them to go. I mean, he's sort of pretty much withdrawn from the company in the past couple of years in terms of his real close involvement in it. But I get the theme that he's always just sort of had to sit on his hands and has wanted things to be done slightly different. So when he

stopped being chief executive, he was actually chairman and chief software architect for a while. And then in 2005-6, Ray Ozzy came in and he took over the title of Chief Software architect, which is a very fuzzy sort of title. No one was quite sure what it meant, and Steve Barmer actually sort of got rid of him in 2009-10 or so. But I think that Bill Gates wants to do that sort of role, basically thinking about what should we be doing, where should we be going, because that's something that he was always pretty good at. Bill Gates was always good at sort of seeing how the long-term would shape up, but he tended to

be sort of too optimistic about how quickly it would happen. That was, to me, always his slight flaw as a visionary was that he expected things to happen too soon, though I think that's actually true of most people. They sort of expect that these incremental changes will sort of create a tidal way to change, and it'll happen tomorrow, whereas actually it takes years for them to come true. But, yeah, I think there is a risk that you'd sort of have too many chiefs and that things would start to get a bit confused as to, well, who's making the decisions here? I mean, certainly one of the things when I was researching my book

that I heard from people who worked at Microsoft was you'd sort of be in a call with Bill and with Steve Barmer and then Bill would get called off to go and do something else and Steve would give you one piece of advice and then they'd sort of swap over and Steve would get called away to do something and Bill would give you completely opposing advice and which one do you go with and I suspect that there's some risk of that happening again

so yeah, there could be some tension there and it'll be interesting to see quite how that plays out You're listening to Motley Full Money talking with Charles Arthur. He's the technology editor at The Guardian and the author of Digital Wars, Apple, Google, Microsoft, and the battle for the internet. Let's talk about Apple for a moment because in the most recent quarter, they had record sales and the company is obviously a cash machine. But when you look at the stock, Charles, it's still not really moving. It's not reflecting the amount of money. money that they're making. And I'm wondering if they are now, at this point in 2014, where Microsoft was a decade ago, where it was becoming more profitable, but the stock wasn't really doing anything. It's an interesting question, isn't it? I mean, it sort of hinges on two questions. First of all, has the smartphone business gone as far as it can, and as Apple got as much to happen with it as it can? And secondly, can Apple come up with any more categories where it can

generate new revenue streams and new customer loyalties. I mean, Horace Deddey, who runs the SimCode consultancy, you know, he says the thing with Apple is that it's constantly falling and sort of, you know, every time it launches something, people say, well, that's got to be a failure, hasn't it? I mean, you know, the iPod, no one thought it was really going to make any headway in the consumer electronics business for the iPhone. People said, yeah, but the mobile phone business is really entrenched, you know. And with the iPad, they said, yeah, no one's actually going on tablets.

It's been tried before. So, you know, every new thing is a failure until it's a roaring success. In which case, they say, well, you know, you haven't had any successes for a while. You know, look how long it's been since you launched the iPad. So in that sense, you know, Apple is constantly failing and falling. But that's sort of how it is when you're running. You know, you're always falling over when you're running. It's just what, you know, you put a foot out in front of you, and that saves you each time.

So for Apple, the question is, will it be able to come up with some new category? And from the indications about meetings that it's been having with the FDA, people it's been hiring, it seems like it's looking to do something with personal metrics, measuring what you're doing, measuring your health, whether that's a category that's going to be big enough to really drive a whole new revenue stream, hard to know. Then again, it might replace iPods, which are falling off pretty fast. The other question is the smartphone business, because that's half at least of Apple's revenues, and we could guess probably about the same amount of its profits.

There, you know, sign this deal with China Mobile, which could be incrementally important. In the United States, its share of the number of people who actually have a smartphone keeps going up. It's really interesting. ComScore has a long-standing sample, which looks at the installed base. That's the number of people who actually have a smartphone. phone, not the sort of the data about who's buying a phone this particular quarter, but who's got a phone. And Apple's share of the number of people-only smartphone just keeps on ticking up. It keeps going up relentlessly, whereas intriguingly, the Android share has sort of been

very steady around 51%. Apple's share has gone up from sort of 36, up to nearly 42% now. And Windows is miles behind. Windows and BlackBree just make up 3% each of the share. So for Apple, I think it feels that it can just keep on digging away at the smartphone market and I think its big target this year will be the Far East and I suspect that it's going to have a large screen phone later this year possibly as one of a number of different models because in the Far East, phones with big screens really sell well. They don't do so well in the States but I think that Apple really is seeing the Far East as the potential engine for growth as people get more and more money.

I mean, compared to the United States, there's far more room for growth for Apple, far more in the premium segment who it could reach once they actually become rich enough, then the market exists in the U.S. and North America. Up next, more with Charles Arthur. You're listening to Motley Fool Money. Welcome back to Motley Full Money talking with technology writer Charles Arthur. CEO Tim Cook has promised a. new product from Apple by the end of this calendar year, so the clock is ticking, is wearable technology

really the safest category to bet on if you're reading the tea leaves because some people are still holding out hope for something related to the television? I'm always amused by the television thing. I think anyone who believes that Apple is going to come up with a television, an actual thing with a screen on, I think you might as well give that one up now because The television industry is comparatively low volume. It's about 10% turnover per year in terms of how frequently people replace their sets. It's a very low margin, I mean, very, very low margin. And it's one where the high-end segment is really hard to find.

And also, it's so geographically diverse that a television that you made for the United States, though you might think that's a big market, actually it would not do at all well in Europe just because of different times. territories, different TV encoding, different ways that the content reaches you. It's simply not ready for that sort of disruption. What Apple might be able to do with a set-top box that ran some sort of Apple software, I mean beyond what it does with Apple TV at the moment, I think that's a space that's much more open and more interesting things could happen there. But again, it would have to be looking to different regions, different content, different ways of doing

things. And I suspect at the moment it's sort of comfortable with how Apple TV does in just generating incremental sales for the iTunes store with things like films, TV series and so on. When it comes to wearables, well, that's more interesting. You know, Samsung sort of did a pretty terrible thing with the Galaxy gear. I think everyone agrees. They're rapidly cutting the cost. They were trying to set up for $300. They've now slashed $125. dollars off that in most places. I would expect that another 125 could come off that probably before

you might get people interested. But it's a bit like the market for MP3 players back in sort of back in the 2000. You could see that they were going to be good but at the same time the ones that were there were really clunky, they were slow they weren't sort of

neat and lots of people were trying to do them. Then Apple came in with the iPod and everyone went, oh okay, that's how you should do an MP3 player. And they did things like it was more easy to maneuver around. It had more useful information. You could transfer information more quickly.

And I suspect that they're ready to do something quite similar with wearables, because there's all sorts of questions that people haven't quite asked themselves about what you want a wearable to do. And it's interesting, I have a pebble watch, one of the kickstar

wearables, which does things like tell you if someone's ringing you, it's connected by Bluetooth to your smartphone. And the last Apple executives I've met, both asked me, oh, yeah, so how do you like that, Pebble? You know, they've been interested in my responses to that. And I sort of take something from that. I suspect that Apple is looking at this sector with quite a lot of interest. You're listening to Motley Full Money talking with Charles Arthur, technology editor at The Guardian. You mentioned earlier about Google and how it was cutting ties with Motorola, selling it off to Lenovo.

this was the biggest acquisition by a country mile that Google has made more than $12 billion, Charles. How big a miss did Google make on this? I know they're not hurting for cash, but I don't think there's any reasonable objective person who could look at the amount of money they paid, the fraction that they sold it for, and say, oh, yeah, this was a big win. Yeah, it's true, but they sold it for about two points, or they're selling you for $2.7 billion. to Lenova of China, and they paid about 12.5 billion, it's true. When you sort of take various bits and pieces here and there, the gap only comes to about three to four billion dollars.

Well, I'll say only, you know, I'd like to have it in my bank balance. And some people would say, well, that's okay, because they get all the patents that they bought from Motorola. And actually, you know, the patent hoard is why they bought Motorola mobility in the first place. There's a document filed with the SEC by Motorola called Backgrounds of the Merger.

It's a proxy thing from 2011. And that shows that the meetings between Andy Rubin and Sanjay Jarre of Motorola Mobility at the time, the CEO, was entirely talking about the patents and Google wanted to buy the patents from them. And Sanjay Jarre said, well, look, I'm not going to sell the patents.

You know, you have to buy the whole thing in a job lot. Google did. It wasn't able to turn it into a profitable business because it was losing money already. The other handset makers who were making Android phones didn't like the fact that Google might be in competition with them. So Google sort of set it off in the corner and let it play by itself.

And it sort of money dribbled away down the drain. But equally it had the patents. Now, the question I think is an interesting one is whether those patents are worth between $3 and $4 billion. And I think that there are questions to be raised there because actually Google has not succeeded in a single core case anywhere in the world in asserting any of those Motorola patents. In fact, it was bound over by the FTC not to use a number of the standards patents, things like Wi-Fi and H-264, which is

for video encoding and decoding, not to use any of those to try to get sales bans, injunctions, against any other company. So the FTC bound them over on that in January of last year. And most of Motorola's patents relate to that sort of thing. And I think it's still unopened question. Are those patterns really worth that amount? I think that it would be interesting to see if there's somewhere of valuing those properly. We got just about a minute left. This week, Facebook turned 10 years old. The last time you were on the show a couple years ago, we were talking about their struggles with mobile, and now it's more than half their ad revenue. Where does Facebook go in the next 10 years? It just goes more and more mobile. I mean, I'm very impressed by the fact that

they now have more people who are using it only on mobile than only on desktop, although most people use it on both. And I'm very impressed by the fact that they have more than half their money coming from those people on mobile. I think that both of those are a fantastic coup. And their strategy now, which is to sort of split Facebook into lots of apps that people can jump about between on their smartphone, I think is brilliant, actually. So the mobile internet is expanding.

There's a couple of billion people on at the moment. That's going to double in the next 10 years at least, I think. and Facebook can really make hail that. You can read more from Charles Arthur in the Guardian newspaper. You can follow him on Twitter, and if you're interested in technology, you really should be reading his stuff. Charles, thanks so much for being here. My pleasure.

That's going to do it for this week's edition of Motley Fool Money. The show is mixed by Rick Engdahl. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.