Out of the dow. Shares of ibm falling hard. Sales coming in short of street estimates for the First Quarter despite gains in the cloud, cybersecurity and watson. It does mark a 20th straight quarter of revenue declines at big blue. Company cfo, martin schroeder, on cloegz well. We have not been solely focused on the top line headline number of when can we print growth. Had we wanted to, we wouldnt have divested 8 billion worth of businesses. We would probably reduce our Investments Overseas where there is a currency impact. That has not been our focus. Joining us now is Credit Suisse analyst who has a rating on the 110 price tag. Ibm is trying to transform is self. How far of a setback back is this . It fundment falamentally tea transition they are going through. We see revenue shrinking through 2019. The second thing, we saw some evidence of that in this quarter. The second issue is this transition towards a cloud or initiatives we think is fundamentally gross margin dill lieu tiff. Thats why they are reported as the lowest in the last six years and fell through for one year. What that means is you have major underlying profit contraction. In the end, could ibm stabilize its top line. Of course, it could. That could be two to three years out from now. Still, you have some cramer said that the shares were friendless today and maybe backed away a bit from that. There is a school of thought they are trying to compete with the Amazon Web Services and the google clouds of the world in a different way because of their ability to attract and be sticky to corporate i. T. Is that worth nothing here . There is limited evidence to that point. Ibm is a very strong competitive mode with enterprises. They have the ear of ceos absolutely. Here is the issue. This is a company now where we are debating whether it can make the earnings when they are supposed to be making 30 of earnings. Will they do that, today is the profitability . Thats where we have some doubts and we believe longterm that the cash is heading to about 11 per share. We talk about this sort of long stretch revenue declines on a quarterly basis. You mentioned it as a problem. Investors havent seemed to mind over the last 12 months. The stock is still up, double digits, about 11 , in the middle of the dow. So what is it now thats a turn for the worse . The one thing is, when the stock was 120, it was a very different move. A Free Cash Flow at that point, around about ten times at a dividend yield of 5 . There was a good valuation story. Last year, ibm didnt miss eps. However, through a number of nonoperational means, lower tax rates and growing the income, some of those are beginning to run out. When you start peeling your way and looking at the numbers, for example, last night. I look at the underlying eps, it could have missed estimates by 30 if it wasnt for a positive cap inflow and higher ipo income. As they leave, they are sustainable. Investors have to focus on the fundamentals. The reason the stock is reacting the way it is today is a combination that the move is much higher than a year ago. It is now in the Free Cash Flow, 15, 16 times, which is actually a premium to many Legacy Technology companies and also the underlying fundamentals and the decline of them is actually accelerating. Underlying profit from the actual divisions was down 30 yearonyear. A marked acceleration. Masking that is becoming increasingly difficult. So finally for those who say that that 20 number going back aways, that 13. 80 is a lot more realistic. You sigh thay that is not quite enough. I think even thats a challenge. Our numbers for this year are 13, well below what the company is gaining. We have made their numbers, second half over first half Earnings Growth has to be 70 . They have averaged 44 . There are a lot of things we are talking about in terms of a new frame to the global businesses service division. Even with all of that, it seems a stretch. There is a legitimate risk building as we go through this year. It will make through nonoperational means, which i would argue a lower quality or a risk of reset coming. Nang ythank you so much for g us. Bears take bears, 110 price on the stock. Getting breaking news out of our nations capital. Lets get to tkayla to you shi. Congressman Jason Chaffetz says he is making a personal decision, after long consultation with my family and prayer full consideration, i have decided i will not be a candidate for any office in 2018. He is currently serving a fourth term representing utahs third district. There is a lot of coverage about a democratic challenger who has outraised him by 31, those donations spiking in march when he made comments that consumers should forg ego buying an iphon to spend money on health care. For those that would speculate, i have no ulterior motives and the full support of speaker ryan to continue as chairman of the oversight and government reform committee. He believes he would continue to be reelected by large margins. This is coming as a surprise as chaifetz has more than a year left on this term. He will continue serving as the chair of the oversight committee. Certainly, making waves in the capitol this morning, guys. A definitely difficult time to be a republican out of utah. We will see if other races are in his future. He says he might run sometime in the future. Kayla tausche. Multiple reports that fox is preparing to cut ties with host, bill oreilly. A decision reportedly expected in the next several days. Julia boorstin is following that story and joins us with the latest. Hey, julia. The tide seems to be turning against bill oreilly. The board will discuss the matter tomorrow at a regularly scheduled Board Meeting and we will likely hear a decision before oreillys return from vacation monday. This after over 50 advertisers boycotted his show following reports of Sexual Harassment and 13 million in payoffs. His attorney issuing a statement saying, quote, bill oreilly has been subjected to a Brutal Campaign of character assassination that is unprecedented in postmccarthyist america. Fox has no comment. Their shares are down about 5. 5 since april 1st when the New York Times pri printed the allegations. Despite the fact that they are the Top Rated Network over the past 15 years, there is question after departures of gretchen carlson, Greta Van Susteren and megyn kelly. The oreilly show generated higher revenue than any other show bringing in 325 million in revenue over the last two years. It was also a valuable leadin for other shows such as tucker carl kr carlson. An attorney representing two of his accusers says she is not giving up until he is gone. Talking about what the impact would be on an oreilly exit. Former cnn president , john klein, now ceo and cofounder of tap tv. Good to talk to you again. Just from a programming perspective, how do you replace the biggest anchor in cable news without dramatically affecting ad revenue. Fox news is sort of the new England Patriots of cable news. They have got a system and they can use their tom brady and still peel off a winning street. This isnt a cataclysmic event but it is a big challenge. Last week with oreilly on vacation, their ratings were down 26 but fox news was still by far the Number One Network in all of cable tv. Not just cable news. So they have got a cushion here. They can start to move around the chairs a little bit without suffering too badly, i think. Thats on the outside, john. What about on the inside . What do you think morale is like after roger ailes and now this, the culture of fox news. I think that they are banking on the culture being driven by winning. These behaviors that be alleged to have gone on have been around for many, many years and people there were very happy to be working at fox news because they were so dominant. If that dominance continues, they may be able to whistle past whatever morale challenges they may face. The fact that how do you think ailes would have handled the situation if he were still there . Well, i guess well never know. He is intensely loyal. He will back up his people. At the end of the day, it is always, whether it is ailes in charge or Rupert Murdoch in charge or the sons in charge. It is always about money. Not so much about image or morale. This only came crashing down on them because advertisers pulled their money. If that had not happened, they wouldnt have cared about the image. They would have gone on business as usual. That was the point i was trying to make with jim stewart. I think it took time for the advertisers to make this call. The new York Magazine is sort of painting this if it does happen and go through as reported as a generational shift. The sons cementing their role at the top of this company. Is that how you see it . Im not sure. We dont know to what degree rupert, the dad, is looking at the hard numbers and saying, as a business proposition, this is untenable. They may be simply making a cool, calculating business decision and thats that. We made the point in the last hour, you get all these companies, john, uber, fox, who are under pressure for sort of behavioral, cultural norms that some say are now out of practice and i just wonder how as a manager you try to remedy those, if, in fact, you think your own operations are under some Public Relations threat or could be in the future . The best way, and i think the only way, to counter a morale challenge internally is to get out there among your people and articulate clearly what the values of the company are and then make sure that your senior managers are walking that walk, not just talking the talk. Employees need to see results. They need to look you in the eye and know what you believe in and then see that you are living up to the principles that you have articulated. Companies that do that have very satisfied employees who never leave. In todays economy, it is more important than ever to make sure you have got a work place thats attractive to everyone of all sorts of backgrounds. You are competing for the best minds out there more than ever. Millennials are specially sensitive to this. One final question, john. I was going flew some of the wall Street Research on 2 1st century fox. They are looking for the ability of fox to get the acquisition done by london base sky. Notorious strict in the u. K. It needs to be considered fit and proper. Do you think that has anything to do with how this will shake out . I am sure it does. That then also plays into the money calculus. Sky is meaningful to them because bottom line concerns and they have got to make sure that they are able to become and maintain a global presence, which is more important than ever, clearly, a global media economy and they have also got to be thinking about programmingwise, the threat to them from the right posed by overthetop channels like breitbart and mark levin and all of those. Thats the biggest threat, not so much their other Cable News Television competitors. Its a big story in media circles. Also, up for the stock, up 2 earlier in the morning. John, appreciate that. Good to see you again. You too. When we come back, facebook unveiling those new augmented reality tools at its Developers Conference out west when actual reality causing the bulk of the problems. Later, the reviews are in. What Walt Mossberg has to say about samsungs latest smartphone when squawk alley comes back. Ic . Can we push the offer online . Brian, i just had a quick question. Brian . Brian. Legacy technology can handcuff any company. But yes is here. Youre saying the new app will go live monday . yeah. With help from hpe, we can finally work the way we want to. With the right mix of hybrid it, everything computes. The president is going to sign an executive order designed to hire americans. Could we get a tax package on the docket before the end of the year . If it drags no 2018, it gets harder to get done in an election year. The president coming hearsaying we honor grit. We honor making things and saying that American Manufacturing is important to our future. Were going to focus on it is important. Facebook Ceo Mark Zuckerberg announcing a new into reality. Whether you become friends with someone on facebook, your relationship gets stronger. When you join a community online, that physical Community Gets stronger. Augmented reality is going to help us mix the digital and physical in all new ways and make our physical reality better. Thats why this is such an important trend. In light of this weeks tragic events in cleveland, some oi whi of which unfolded on facebook. They need to deal with their actual reality first. Lets bring in mitchell green and mark isaac. Good morning. Good to see you both. We heard zuckerberg address the cleveland episode specifically. How much did it overshadow that fate overall. It was probably the worst timing for facebook to go through one of these crises directly before one of the biggest developments of the year. They were tag facebosaying face which to connect with your friends online as well as the real world. They want to blend both of those. You saw a version in a horrible way with the murder that was uploaded to facebook over the weekend. So if you sort of connect those two ends and essentially look at the darkest part of facebook and what can occur on the platform, it was probably the worst timing for the company. Mitchell, i wanted to ask you about the social v. R. , which was one of the big headlines and ideas to come out of yesterday, this idea that you are chatting and gesturing to your friends all through Virtual Reality. If this came to you as a Company Pitch as the way forward for the future, would you be a buyer . It is hard to tell. For us, probably not. We tend to be more later stage investors. The financial metrics are already there. There are a lot of very smart investors looking at augmented reality and Virtual Reality as potentially the new big platform and snap choat, facebook, all these Big Companies are trying to figure it out. Google glass was not some big success. Far from it. I think time will tell. We dont mean to minimize what happened in cleveland. Stocks back to within a buck of an alltime high. Farhat manju, your coworker at the time says, how underestimating zuckerberg, do it at your own peril. I think you are right. The question for me is, it seems like it was a clear sort of point or tacit admission that they bet on v. R. , Virtual Reality. They bet way too early and thought there was going to be a lot more progress in the space than they are seeing right now. Sales of oculus are there. What do you focus on in the nearterm specially when Companies Like apple and google and magic in florida are doing this thing in a. R. , that was facebooks bet. We all have smartphone cameras already. Why not use that to get us into the space faster. Mitchell, what are you doing in the space, if anything and what is your take on where it is all heading . Look. We have not done anything. None of these companies have any substantial revenues at all. My personal view is that and our personal view at lead edge is that mark and the cheryl and the team at facebook basically made a call auction bet. It didnt cost them much. They believe this potentially could be an enormous platform in the future. They are trying to figure it out. We have had opportunities to look at magic and ali ba ba ba n investor there as well. They are huge ideas. People that get in early could potentially make huge sums of money but they also could be zeros. We tend to focus on more growth stage businesses. We are going to watch that. F. A. Course continues. It could be the biggest ecommerce deal ever. Petsmart agreeing to buy chewy. Com at an indisclosed amount. It could be worth some 3. 35 billion. That would top walmarts acquisition of jet. Com. Our colleague, p jim cramer, has called the human zation of pets one of the great investing themes of our time. Hard to dispute when you get deals like this. I think i am uniquely qualified in that my dog is basically my child and most the ac ac significanc acquisitions i focus on are in dog tech. A ur a merger for a dog daycare i used to use in brooklyn that worked really well. I see this potential deal. Look at walmart and jet. If you are traditional, you need to move into the online space. People are ordering dog food and pet supplies from the internet, which is something that i do too. Go and buy someone who has the supply chain figured out and move online right there. That would be my guess. To that point, mitchell, this is a reminder that amazon gets a lot of the air time and the headlines for stealing everybodys lunch in retail. There are some very fast growing online retailers of their own. Chew we chewi, we just showed a few. Who else is out there . Look, we are investing. Obviously ali baba has a big business. We are investors in box. It is almost lik a mobile costco and chewy was absolutely crushing it. Would i not want to be petsmart and you are really competing with i would not want to be petco. Petsmart and amazon are now two real big forces. Congrats to the guys at Volition Capital and green spring, which were early investors in chewy. There are a lot of very Interesting Companies in the whole pet tech space in general, Companies Like rover and dog vaca, some of these new Food Companies selling the dogs. We have two french bulldogs and four little girls. We tend to try all these. I see pet things regularly in the refrigerator. I wonder, increasingly, with retail, we hear immunity to ecommerce disruption as a big plus. I wonder if that is increasingly being heard as part of the pitches that you get that there is no way amazon can come after us. If they do, they are going to have a harder time than they have had