And the pace of the tech sector expansion. We will hear about lenovos plan to buy the server for 2. 3 billion. But regulators question the justannounced a deal. Not offline during its outage, alibaba cost billions. Will this scare off investors . Hundreds of millions of chinese consumers and businesses themselves without much access to the web. This lasted at least 45 minutes but took as many as eight hours to refresh service. Orgs and. Nets were out of business, alibaba and baidu were unavailable. This was linked to an obscure company in wyoming. Who is responsible for this . The Chinese Government blames this on a hack attack. But others say the Chinese Government caused this outage itself trying to block content. On skype from germany is our bloomberg correspondent who covers cyber security. This obscure web address in wyoming, this is a very fringe aspect of this, the traffic that all of these consumers and businesses were trying to do ended up going to wyoming. It was going to an anticensorship server. What the Chinese Government was doing, they had the service on their mind. They had the anticensorship service they wanted to block. This is a service that normally would be blocked in china. Something got mixed up and rather than being blocked from the site, all traffic was redirected to the anticensorship server. This is a funny mixup in a way. Talk about how big of a deal that this was and how they did such a good job of looking out for this . I suspect that 500 Million People are able to access the internet, either by browser or mobile phone or whatever device that they use. Those people who are independently accessing the chinese website, or the china website did you say 500 Million People were unable to get online . I suspect that that number of people are unable to access the websites in china. This is about as big an outage as the internet can have. I suspect that, yes. Talk about how big of a deal this is in the way that the internet is used in china, and the things it is used for. The internet in china is used exactly the same way as it is in other countries in the western economy. We chat with other people, so everything, probably did not work well at that good moment. Have we ever seen anything like this before on the internet . Not really and i hope not to see it again. I hope to see a few tiny issues but nothing that big. What is it about the way that china who is responsible for this . The Chinese Government has come out and said that this is the result of hacking. More likely it is the effect of china attacking itself. China is just an island on the internet, nothing gets there or leaves without the government having some awareness of that. That is different from how the internet you works in the United States where it is much more fragile. The idea that this was a hacking attack, is it possible the nsa was in the chinese censorship machine . Their structure is completely different . This is completely isolated. Nothing goes in or out without the Chinese Government knowing about it. With centralized control, you run the risk of that backfiring on you. That seems to be the case. You broke this story. How did you determine what had happened . This was mainly an accident. A customer called me in the morning, i suspected that Google Analytics had an issue in china, and i directly tweeted to whoever if they had an issue in china. But then i cross checked with the monitoring infrastructure, it was not working. And i finally found some benchmarks that we ran in china, completely, everything was not working. That got me into digging more into details. There is a big effect. In all of the u. S. Traded technologies, they do most of their business on the internet. This is between 45 minutes and eight hours offline, this is a serious impediment. The Chinese Companies, and for every company, paypal you can pay with paypal in china. They are not shown to people the business that affects these companies that have money to be shown in china were not shown in china. This is a huge amount of business that didnt work at that moment. It is about trust and how people use the internet. Emily chang talked about this one. They talk about operating outside of the walls of the great firewall of china. But if more of these outages happen, companies and consumers who have choices will make them to get around that. There is a risk in this rich irony in this incident, all the traffic was directed at service, and you can control the internet to a very large degree. But there are tools that allow you to get around that. Vpn services. There are ways around censorship. As much control as china has around internet, in cases like this you can see how sometimes these controls backfire. Thank you very well, and thanks to hiko spec. Next, how lenovos deal with ibm may already be in jeopardy because of this big chinese outage. This is bloomberg west, i am cory johnson. Microsoft is looking for a new ceo, but sales were higher under steve ballmer. The profit is only up three percent, at 6. 6 billion. But the bestperforming segment, devices the xbox one launch saw a 61 jump in sales. And gains in the web software, the online Cloud Service helped offset windows which, one year ago, microsoft launched windows 8. Turning back to that massive internet outage in china, news that broke early this morning that lenovo, agreed to by the low end server unit, for 2. 3 billion. The biggest acquisition since funding the brand in the first place. Via skype, our guest from germany and another joining me from new york. Crawford, let me start with you. I was surprised by the low price for lenovo. I wonder what that means in terms of, there is nobody that wanted to buy this except for Chinese Companies. Crawford, your thoughts . I am not hearing crawford. Let me turn to you, cristina alesci. What are your sources telling you about the lenovo deal and trying to make changes in the regulators opinion about whether they will want to allow this business to be sold to china . The deal was announced but the next big hurdle is obviously going to the committee on Foreign Investments in the u. S. And getting clearance from regulators on this review. Anything that raises questions about chinas governments involvement in technology and internet areas is going to highlight the fact that the government is very much involved. It could create a little bit of a hiccup for them, but lets keep a couple of things in mind. At the end of the day, ibm and lenovo will say that this is not Critical Technology that they are dealing with. Very much a commodity, in a sense. You are surprised at the low price for this deal because nobody really wants this business. They will argue that this is not Critical Technology. The other thing is that lenovo and ibm went to this process, when ibm sold them the pc business and they were improved with conditions attached. There were some things that lenovo had to give up in that deal to get that review. Lets not forget, the u. S. Wants foreign investment. They want china to come the Current Administration has been asking Chinese Companies to come in and create more opportunities to invest. Those are the things working in favor of signing off on the deal, but this current outage does raise more headlines and questions about chinas involvement. When you talk about the price for this deal, i wonder, it really does suggest that there were not a lot of other bidders. Hewlettpackard is about 4. 5 times the sales, this unit went for about five times the sales. This deal had been talked about for a while, all of these technology companies, these Older Technology companies, are struggling with the idea that they have to get out of hardware and become software. Did you just call me older . I said you are no better, you are wiser. This is emblematic of what every single oldline hardware company, i was actually referring to old technology, not your age. Ibm is going through this process, when they really need to go through this process. Ibm has saved itself from death a couple of times here. They are trying to reinvent themselves again so it is critical that they shed this. Investors are not valuing going deeper into software and services where the potential growth may be. Lenovo, this does not do much in increasing their margins but at the end of the day lenovo needs to grow, too. I saw signs from the lenovo president and crawford is going back into this. Given the news about the internet outage, and the great firewall of china, the company that looms large to me is the battle between huawei and sysco the company that is probably the background of that firewall of china. They would definitely except the consideration approval of the deal but at the end of the day, i think this is good news for dell and hewlettpackard. In addition to other entrylevel server manufacturers, the bottom line is that this probably includes government business in the United States going to somewhere else. And when you get through that, lenovo ends up in a way to grow and i disagree a little bit because it can be added to that margin. I think that when you are on the square on the board where lenovo is, even when you net out the government district, lenovo wins. They get a license to manufacture and they get to move up the ladder in terms of customer profile and margin. Crawford, you bring up a good point. This is actually a customer of the ibm server business. They are raising some concerns but what i am hearing is that the department of defense has a great firewall when it comes to this and they will not be able, even if this is under control of a Chinese Company at the end of the day, there will be massive firewalls. That would not allow any kind of hackers or snoopers to get to the source codes so that would not really be an issue. I agree with you, they may lose the department of defense business going forward. I would tend to agree. With that, crawford del prete, in agreement, along with cristina alesci. What kind of impact will this massive internet outage cap on have on the social media websites in china at . We will talk about the breakdown, up next on bloomberg west. This is bloomberg west. I am cory johnson. The massive internet blackout in china, how did this affect social websites . Michael is in new york and our Senior CorrespondentJon Erlichman in los angeles. When you look at the world of twitter and facebook, a giant part of the world is offlimits for them. That is china. How does this affect the largest social media brand to grow in the biggest open market . I dont think that this has an effect. Executives from facebook and twitter, one question that kept coming up was about china, and their response was straightforward. We are not there, and this is not a huge focus for us. There are other areas we are going for. It is complicated to be there, and they are not there, they want to divert back attention. Global digital marketing, this is global in 2 ways. Global and china. A lot of these Companies Really market independently of the Global Digital organization because of all these changes, and the different set cultures. Let me follow up with that. When a brand looks at working with alibaba or baidu, does that change after today knowing that they wont have the access that they want to get to where they will have access at all, trying to have more direct contact . I was on email earlier today with my friends in china, asking about the marketing perspective. Their response for a small sample with three people was really, none. We will be back online and life will return to normal. We are not changing programs dramatically and we are spending a lot of time talking about things that wont have a longterm effect on our business. The critical difference again is how these Big Companies work in marketing campaigns. Facebook and twitter do global deals but global deals outside of china because they are not there. The chinese marketing organizations have a lot of control over how they market to consumers in their country. John, does this give facebook and twitter ragging writes about bragging rights about Technological Prowess . I think that today, they actually have this opportunity, even if there is an immediate opportunity for them to jump in, to champion their platform. Any Technology Company prides themselves on always being on, always running. In the case of wei wau earlier pronounced it in my kadian voice, thisamerican is the reality. We freak out when twitter or facebook have a hiccup or even a few minutes, and you are talking about possibly not being able to get on their for a few hours. This is a big deal. It opens the door for what facebook and twitter are, potentially. Aside from the ipo and the politics surrounding it. And a challenge to get in those markets. How do Global Brands deal with the censorship of their potential chinese consumers . They really focus on doing local marketing in china. The marketing in china is unique. They connect with customers in that market. A lot of the decisionmakers in new york have limited or not any knowledge with how the process takes shape. They work on Building Materials for the laws of the land, the same way as when we are talking about canada and the u. S. , they have their own advertising standards and their own local rules and just like other countries, people operate within them and find ways to market to consumers. They dont mind the censorship, but i dont know if the consumers feel the same way. Jon erlichman and michael, thank you very much. How is the expansion into the chinese tech sector affecting the Global Supply chain . We will talk to one of the largest wholesale distributors in the world. Next. You are watching bloomberg west, markets, innovation and the future of business. Im cory johnson in for emily chang. Hp plan to make products for palm patents but now qualcomm has bought this out, with 4500 patents including the ipack and the bitphone. Microsoft is going to let 400 put their customers personal data overseas due to concerns about the nsas surveillance program. This was announced in davos today. Microsoft only turns over information after government request and due process of law. The hollywood studio, chris cook, the president of Sony Pictures technology has been let go as this is merged with sony entertainment. Sony has pledged to cut 250 million in expenses this year. Worlds largest wholesale tech provider has been in china for more than 15 years. China is one of the top five countries where they work. 80 cities in china all with ingram micro offices. Im glad to see you. I would be happy to talk to any day, but on a day when china is such a focus with this internet outage, you guys have been doing business in china for so long. How is doing business where there is so much government censorship, how does being a Technology Company feel different . England michaels has feel different . We try to keep in touch with the customers with the suppliers and the vendors. We focus on the market. When you look at the market, we have been successful there for more than 50 years, with the acquisition of a local company and local managers who understand how the dynamic works. And not being the manufacturer but being the intermediary between the manufacturers. We focus on what the market plans are there is a lot of concern, globally about the slowdown in buying in china. How do you see business in china right now . We see the same and over the last two or three years we have seen 20 growth in the china market. This has slowed down, but it has slowed dowfrom 20 . Some quarters we were flat, frankly. We have been communicating but there are adjustments. That market is so poorly penetrated that the longterm trend you are seeing no growth in china . We have seen over the last two quarters, the slowdown that is due to the tablets and smartphone cycle. Not fundamentals on the i. T. Sector. This is quite relevant to both the wild west story, the the storyei story, about censorship and government control technology, and lenovo. Is this much more focused on Chinese Companies . It is more focused on Chinese Companies and that is what we are focused on, the focus on the chinese market. Of course, new manufacturers are coming up, chinese manufacturers are working outside. We have been working with lenovo for many years, very successful around the world and in china. This opportunity with the new ibm potential deal, we have seen that before, and it has worked very well. We are not concerned longterm, because things could happen that are different. But in the longterm of the last 15 years, we have not seen the ups and downs. You are partnered with cisco sysco, john was on the phone and he said the nsa Prison Program has the nsa program has hurt sales in china. Do you see that with other manufacturers . I think they have innovation in a situation that happened in the u. S. This is a very targeted area in those products. I think that the challenge that they have is very specific to that technology. Other technologies have much less of a problem in those areas. We are not seeing that today in the business world. One of my big picture thesis ideas for this year is the migration to the cloud, is causing some companies to build up hardware. I just think i am right, but i also look at the news of the internet outage yesterday, i wondered if there could be separate, public clouds where china will have its own cloud in the rest of the world. Our view of the cloud, even though there is a shift in the Customer Base and the hardware that is available to service everyone, without having to buy, there is a transfer that is happening but there are many other opportunities that can now be hosted on the cloud. The opportunity is much more larger now with the cloud availability, than it u