Transcript: Nightly Business Report – September 7, 2016

NBR-Thum ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Evolution or revolution? Apple shows off its newest iPhone. But are the changes to the device too conservative at an especially challenging time for the company?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT: On our shores. Why the bankruptcy of one of the world’s largest shipping companies is causing chaos and confusion and why the effects could ripple through the global economy.

HERERA: Slam dunk? What Under Armour is banking on to gain market share in China?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, September 7th.

MATHISEN: Good evening, everyone, and welcome.

The world’s most valuable company captured the attention of Wall Street, Main Street and the iFaithful as it usually does with a big event and unveils a new device.

But today, there was no new device. The Dow component did not chart a bold, new course or show off major innovation — though the company might dispute that. It did, however, make some changes to its flagship product, the iPhone.

But those arguably incremental changes come at a time when the company faces challenges. Its smartphone sales are slowing. Big institutional shareholders are selling and the company is in the middle of a huge tax fight with the European Union. Its stock once a rocket ship has become a bit of a slow-moving barge. Despite rising slightly today, shares are off about 3 percent this year. While the broader Dow index of which it’s a component is up 6 percent.

We start tonight with Apple’s latest announcement and Josh Lipton has it for us from San Francisco.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Less a revolutionary new product than an evolution, Apple’s CEO Tim Cook unveiled the iPhone 7 and 7 Plus today in front of a crowd of Apple die-hards in San Francisco. The new phones have come definite upgrades and one noticeably absent feature. Apple is eliminating the analog headphone jack that began with the first iPod and replacing it with a lightning jack currently used to charge the phone.

But in an attempt to limit backlash of consumers forced to get new headphones, Apple will have an adapter for older ear buds with all new iPhone models. Or customers will have the option to buy wireless air buds called ear pods.

Other new features of note, one that address common complaints of users in the past, the first better battery life. Apple claiming up to two hours more juice on the 7 Plus.

And what may have received the most applause of the day, the long-awaited arrival of a water resistant phone.

Both new phones will also feature a better camera and processor. Apple’s event today amid concerns with some investors over the company’s pace of innovation and somewhat stagnant sales growth. Sales for the fiscal expected to drop for the first time in 15 years.

And while the iPhone introduction was the main event today, Apple introduced also the Apple Watch Series 2. Sales of the original watch down 57 percent in the last quarter, according to new estimates by the International Data Corporation. The new watch like the iPhone 7 will be water resistant with new features geared especially towards runners and swimmers.

Despite all the upgrades, investor reaction was somewhat muted today with the stock basically flat in today’s trade, though it has increased about 10 percent in the past three months.

For NIGHTLY BUSINESS REPORT, I’m Josh Lipton, San Francisco.

(END VIDEOTAPE)

HERERA: And now to Apple’s other challenge — some of the biggest global funds selling their shares. New data of research firm eVestment shows that institutional investors sold the stock in the second quarter. The drop in Apple ownership was bigger than any other major stock. The research firm tells CNBC that some investors and asset managers may be starting to believe that Apple’s big growth days are behind it.

MATHISEN: Apple is also watching closely what’s happening in Ireland one week after the European Union ruled that Ireland granted Apple undue tax benefits. Ireland’s parliament now appealing the decision. The outcome of the appeal is expected sometime tonight.

Julia Chatterly reports from Dublin.

(BEGIN VIDEOTAPE)

JULIA CHATTERLEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: An important vote, but also, just a symbolic one from the Irish parliament tonight, voting on whether or not to back the government in their decision to appeal the European Commission’s decision to hit apple with that $14.5 billion tax bill. What the government has been saying all along is this appeal will succeed. Why? Because we never gave Apple any kind of sweetheart deal or preferential treatment, which is fine.

But there’s a bigger question here. What does this mean for other big tech companies here in Ireland, the likes of Microsoft, Facebook? Could they get the same deal as Apple and is there a huge risk now that these companies get hit with the similar kind of tax bill as Apple at some point in the future? That’s the question I put to the Irish prime minister.

Listen to what he had to say.

ENDA KENNY, IRISH PRIME MINISTER: The other cases on appeal to the European court to which Ireland is a party but the amount mentioned here is a staggering amount in comparison to the other countries so from that perspective, it’s a number of years to actually conclude.

But it sends us a wrong signal from the commission, particularly when Ireland has been one of the foremost players on the OECD program to deal with this problem of a broken corporate tax system internationally by having an international response. We have changed our registration here. We have gotten rid of the status concept. We have gotten rid of the so-called double Irish concept.

CHATTERLEY: So, what he was effectively saying there I think is that it’s a tax legacy and the loopholes are closed and didn’t answer the question of whether or not the likes of Microsoft and Facebook are still at risk from a similar issue.

Now, I did ask him another question, very potent in light of today’s events, whether or not he’ll show solidarity with Apple and buy the iPhone 7 and he got excited and said he owns the iPhone 6 and but that he’s having a few issues understanding its tips and tricks. He said he asked Tim Cook last week if he could help him. He said he would, but for my sense that help could take a while to understand. I think he better stick with the iPhone 6 here and delay on the old upgrade.

For NIGHTLY BUSINESS REPORT, I’m Julia Chatterley in Dublin.

(END VIDEOTAPE)

HERERA: Well, from the tax battle with the E.U., to a sagging stock and no major overhaul, some are wondering if Apple may have reached a plateau.

Timothy Lesko is the principal portfolio manager at Granite Investment Advisers. He thinks the company has plenty of room to grow. While Ross Gerber, CEO and president of Gerber Kawasaki says the company has reached the end of its innovation curve.

Thank you both for joining us.

We kind of put forth the plateau argument. I want to start with you, Tim, if I could. You’re still bullish on the stock. You think they’re still innovating.

Tell us why and what they’re doing that you like.

TIMOTHY LESKO, GRANITE INVESTMENT ADVISORS PRINCIPAL: Well, I think they’re innovating by creating the digital lifestyle that they have been talking about for ten years. So, they have products that are wearable. They have products that are the phone. They have products on television. They have products in the home from thermostats to, you know, the software on the basis of home automation devices and they’re moving into the car, as well.

So, if you look two, three years out, I think apple controls the digital lifestyle regardless of what this quarter’s iPhone sales are.

MATHISEN: Ross Gerber, do you buy this stock as a gross stock? Do you buy it as a value stock or do you just not buy it?

ROSS GERBER, GERBER KAWASAKI CEO & PRESIDENT: Well, it’s not a growth stock with earnings going down and revenue going down and 12 P/E. It’s a value stock.

But the issue we have isn’t whether the products are great. They have evolved them as far as they can. The issue we have is, you have to sell more products and make more profits every year for your stock to go up. And they’re just not able to do that anymore. So, what’s the next product that’s going to really grow Apple’s pie?

MATHISEN: Is it a question then of scarcity of innovation or of market saturation? In other words, there are just so many people who can pay $695 or $649 to buy a phone?

GERBER: Yes, it’s both. Not only have they got given us really any compelling reason to buy a new phone, but they have another completely — the market for a high-end phone is full now. So, they have not addressed the fast-growing emerging markets in any way. They need $150 or $200 phone and if it’s really about the ecosystem, build the ecosystem. But you can’t have a phone for rich people around the world.

HERERA: But, Tim, I would argue that Tim Cook has spent a lot of time recently in India and in China, and he pointed out India in a big way as growth. So, to counter what Ross was just saying, is it one of their biggest opportunities in these emerging markets which are much more populous than other parts of the world?

LESKO: Well, certainly. And I think, you know, to Ross’s point, they need to be playing toward the growing middle class and upper class in those countries. So, I actually disagree with Ross. I don’t think they need $150 or $200 phone. They’ve never played in low-end products and I don’t expect them to here.

But, you know, working in those countries is — there’s a lot of politics and there’s a lot of in-country work to do and I think Tim Cook is laying that groundwork. It may be a while before we see the fruits of that.

MATHISEN: But how do you get the growth if the market for the high-end phone in the mature markets is a little bit saturated?

LESKO: It’s a little bit saturated but the phones wear out, batteries wear out and the upgrade cycle continues. So, Apple’s one of the few company that is has a cash cow in the form of the iPhone business domestically and using that cash cow to build out the business in other countries, and in other services. So, where Ross is right, it is not currently a growth company.

It is building a strong platform to be a player in whatever the next revolution is in communication.

GERBER: But we know what that revolution is. It’s virtual reality. And they’re the only major tech company that has nothing. They’re missing the boat.

Look at Facebook, at all-time highs growing like crazy and Oculus is going to be a key part of that growth.

LESKO: That’s not really fair because Facebook’s revenue doesn’t account to Apple’s services revenue is.

GERBER: Yes, but it’s a 10-year-old company.

(CROSSTALK)

LESKO: Who’s using Oculus and who’s making money on it?

GERBER: I’m using Oculus and they’re making money.

LESKO: They’re not making money. They’re making money on ad revenue.

GERBER: We are talking about the future and the future of virtual reality and that’s a fact.

HERERA: Very quickly, what are each one of you —

(CROSSTALK)

LESKO: Well, we own the stock and, you know, for clients that come into us now, we would be buying the stock.

HERERA: Ross?

LESKO: But I don’t think people sit in the sofa and use virtual reality to do what they do on a daily basis.

GERBER: Well, you are just incorrect. We are owners and been sellers of the stock and we have lowered our position.

HERERA: Gentlemen, thank you both. Timothy, Ross, really appreciate it.

MATHISEN: That’s what makes a market there.

Slight rise in Apple share is not enough to lift the broader market today. It closed mixed. The NASDAQ, however, continued its win streak, posting four straight days of gains, notching yet another all-time closing high. Industrials, Dow, fell nearly 12 points to 18,526. NASDAQ, though, added 8, only one in the green today. S&P 500 was off fractionally.

HERERA: Employers in the U.S. advertised a record number of job openings in July. The Labor Department says there are more than 5.8 million openings in the country. That’s above the peak reached in April and it is a sign that hiring remains healthy despite that disappointing August employment report.

MATHISEN: A report today from the Federal Reserve showed a tight labor market is not generating substantial inflation pressure. The Fed’s Beige Book, which is a region by region look at the economy across the country, characterized economic growth as modest or maybe even moderate.

Eamon Javers has the details.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Fed’s Beige Book is out offering a picture of the economic health of the nation at the end of summer 2016. The Fed reports that national economic activity continued to expand at a modest pace from July through late August. The Fed’s contacts across the country generally expect moderate economic growth in the coming months.

Now, several key economic sectors to watch and consumer spending and tourism, retail sales volumes appeared little changed since the prior reporting period and the Boston, Cleveland and San Francisco districts suggested modest gains on balance.

In manufacturing, activity was flat to slightly up in general with Chicago in particular reporting a moderate pace of growth.

In real estate and construction, activity expanded further in most districts. Residential construction was moderate across many districts but robust in San Francisco.

And in employment and wages, employment expanded at a moderate pace since the previous report, with St. Louis in particular reporting that pressure on wages remains strong. But in general, expectations of wage growth for the coming months were modest.

Election showed up as a concern for some businesses, including real estate decisions and retail auto sales in some districts.

And in the Atlanta district which encompasses South Florida, contacts observed fewer international arrivals and we’re monitoring the potential impact of Zika on international travel.

For NIGHTLY BUSINESS REPORT, I’m Eamon Javers at the Federal Reserve in Washington.

(END VIDEOTAPE)

HERERA: Still ahead, why a massive bankruptcy in the shipping industry may be just what the global economy does not need right now.

(MUSIC)

HERERA: Congress has failed to move forward a bill that would help battle the Zika virus. The same bill failed twice before because of bipartisan infighting. Meantime, Florida health officials say they have found seven more homegrown cases of Zika. The state has documented 56 locally transmitted cases.

MATHISEN: Republican presidential candidate Donald Trump today said increased military spending is a national security priority. And he called for an end to automatic budget cuts for military spending as part of what’s known as sequestration.

(BEGIN VIDEO CLIP)

DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: As soon as I take office, I will ask Congress to fully eliminate the defense sequester and will submit a new budget to rebuild our military. It is so depleted. We will rebuild our military.

(END VIDEO CLIP)

HERERA: John Harwood following the story tonight from Washington.

John, what specifically did Mr. Trump call for?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, he proposed some specifics in terms of targets for his spending. For example, he said he wanted to take the army up to 540,000 active duty soldiers from the current roughly 480,000. He wanted to go from 1,100 fighter jets to 1,200 fighter jets, 31 marine battalions to 36. That sort of thing.

But what he didn’t do is spell out exactly how much it would cost or how to pay for it.

HERERA: And compared to Ms. Clinton’s positions, how do they differ?

HARWOOD: Well, he certainly seems to be proposing more than Hillary Clinton and she’s ducked on this question. Last year, while she was fighting a Democratic primary campaign that was centered on domestic issues and ways to raise wages she said we should have a national commission on military spending, way of deferring decisions. We may get a greater hint tonight of her views on defense spending in a forum on commander-in-chief issues that NBC is sponsoring.

MATHISEN: How important is defense spending as a campaign issue this fall? This is a first time I have heard it come up, John.

HARWOOD: Well, and that’s no accident. The economy is the top issue that voters say they want to hear about. Terrorism rose to the top of the list after some of the high-profile attacks but that since has receded.

So, this is an issue that is important for the country and important for the next commander in chief. Not front and center with voters right now.

MATHISEN: John Harwood, thanks. John in Washington tonight.

HERERA: Hewlett-Packard Enterprise will spin off some of its non-core software assets and that’s where we begin tonight’s “Market Focus”.

According to sources who spoke to CNBC, the computer maker plans to spin off and combine its non-core software assets with U.K. -based Microfocus in a deal worth nearly $9 billion. Separately, Hewlett-Packard posted higher than expected profit and sales came in a little light. Shares fell nearly 2 percent in after hours but finished the regular day up 1 percent to $22.08.

Apache said it has uncovered a Texas oil field that could prove to be a profitable resource. The energy company said its new discovery has a potential to produce at least 2 billion barrels of oil valuing the area at more than $8 billion. Apache has already begun drilling and said it would raise the capital budget to accelerate production. Shares rose 6 percent $55.13.

Shares of chipotle continued to surge after a regulatory filing late yesterday revealed that Pershing Square took a nearly 10 percent stake in the restaurant chain. The hedge fund said its new position reflects the view that the stock undervalued. Pershing also added to plan to enter into talks with Chipotle’s management. Shares popped nearly 6 percent to $438.45.

And Sprouts Farmer’s Market said it expects sales to stall in the current quarter, prompting the company to lower its full-year outlook. The organic food retailer blamed a competitive environment and deflation for the weak guidance. Shares were punished. They fell more than 13 percent to $19.68.

MATHISEN: Retrophin said its drug intended to treat a rare kidney condition performed well during a mid-stage trial and as a result, the biotech company said it will speak with U.S. regulators about expediting the approval process for the treatment. There are currently no approved medications for that particular disease. Shares surged 27 percent today to $20.81.

Intel reportedly in final talks with the private equity investment firm TPG to sell its majority stake in the computer security division McAfee for more than $4 billion. This according to multiple reports. Under the deal, both Intel and TPG will own McAfee. Shares fell today, 11 cents to $36.46.

And as we reported last night, the potential deal between Liberty Media and Formula 1 is now official. The TV distributor said it will acquire the car racing series for nearly $4.5 billion. Once the transaction is finalized, Liberty Media expects to take on the name Formula 1 Group. Shares fell 1 percent to $17.38.

The economy could be thrown a bit of a curveball. The bankruptcy of a massive cargo company created confusion in parts of the global shipping business. And that could ripple through a number of key economic sectors.

Morgan Brennan explains.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hanjin’s bankruptcy is the shipping industry’s biggest ever. The financial collapse that’s debilitating the global supply chain and threatening to delay holiday goods destined for store shelves. The company filed for bankruptcy in South Korea last week, seeking similar protections in the U.S. and dozens of other countries since then.

Hanjin had been losing money for years, but the move still stunned ports, retailers and carriers around the globe, stranding nearly 80 ships carrying half a million containers filled with clothes, toys, computers and appliances.

CHRIS WETHERBEE, CITI INVESTMENT RESEARCH: In this case, I think there’s a concern in the U.S. that we can see, you know, a good deal of cargo. They make about 5 percent of the Asia to U.S. trade, that cargo could be frozen for a period of time.

BRENNAN: Hanjin is the world’s seventh largest container shipping line. Since filing for bankruptcy, Hanjin ships had been in limbo. Stalled from China to California, as ports refuse to handle containers for fear costs won’t be recouped and workers won’t be paid.

On Tuesday, bankruptcy judge in Newark, New Jersey, granted a temporary order so vessels dock at U.S. ports without fear of seizing assets, something that’s happened in other countries.

Hanjin will be back in court on Friday. But that doesn’t guarantee cargo will actually make it on shore, let alone be transported by truckers and railways to the final destination. According to court filings, HP has computers stuck on ships and Samsung warns it may be forced to spend millions of dollars chartering planes to move its products. The scenario has sparked comparisons to the labor gridlock that crippled West Coast ports last year.

WETHERBEE: We’re going to have disruptions here I think over a course of a few weeks. It should not stretch over a matter of a few months and most likely contained from a volume standpoint than what we saw with the West Coast ports 18 months ago.

BRENNAN: And it’s all happening in the middle of the busy peak season. As retailers and other consumer focused shippers stock up ahead of the holidays. With many fleets suffering from overcapacity, rock bottom rates and weak global economic growth, the fear is Hanjin’s woos could be a sign of more pain to come.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: Coming up, upping his game. What Under Armour is doing to catch up with Nike and what’s fast becoming one of the most import sneaker markets.

(MUSIC)

HERERA: Volkswagen is in talks to make electric cars in China. The automaker is exploring a possible joint venture with a state-run company. VW targeting sales of a million electric vehicles a year worldwide by 2025. China is also investing heavily in alternative energy vehicles as it looks to cut its oil imports and reduce air pollution.

China and Southeast Asia quickly becoming the most important region for sneaker makers. Nike and Adidas have already seen success in the fast growing market. Now, Under Armour making a big push to catch up with the rivals and it has something that other companies don’t, sports star Stephen Curry.

Sara Eisen reports tonight from Taipei.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here in Southeast Asia, it is the new frontline for the global sneaker wars and that’s why Stephen Curry backed by Under Armour toured China, Hong Kong and Taiwan to cultivate a new generation of sneaker consumers. It’s why the battle won’t be played out at a NBA court back in the U.S., but in small gyms across Asia, like here in Taipei where Curry spent hours coaching, meeting, greeting, signing autographs and taking selfies with eager fans.

But like it did in the U.S., Under Armour here in greater China is playing catch up to Nike who’s been in the market for decades.

Kevin Plank, the CEO of Under Armour, is trying to do what he did in the U.S. in this market.

KEVIN PLANK, UNDER ARMOUR CEO: It takes time. You know? Since 2010, we have gone from our first million dollars in business to $3 million in $12 million to over $150 million in revenue this year. And so, we have really just hit that trajectory of growth, and — but it doesn’t happen overnight.

Again, when you think about China, you know, you can’t think about it in terms of this year and next three years even. It truly is — it’s a five-year, ten-year, really a 20-year approach plan and again, it’s got be a gift, it’s got be something which is leaving China with more than you’re walking in and thinking you’re going to pull revenue out of the market.

EISEN: ESPN tallied a list of most famous global athletes. In top ten, Nike stars like LeBron James, Kevin Durant, Kobe Bryant at number 11, Steph Curry at number 34. But Curry says he’s just getting started and in fact looks up to the other players not just on the court but what they have managed to do with their brands globally.

STEPHEN CURRY, 2-TIME NBA MOST VALUABLE PLAYER: There’s always a great examples across from players that are coming before me and so, you know, Kobe’s obviously done a great job of keeping it consistent presence in Asia and once again trying to create an authentic story that’s true to him. As a fan of basketball growing up, I took note of that.

Everybody does it different way and I want to have something that’s unique to me and to the story of Under Armour and Steph Curry.

EISEN: But make no mistake, fans across Asia came out in crowds and enthusiastically applauding their hero, missing school, lining up at 5:00 a.m. outside the Under Armour store just to get a glimpse of the NBA all-star. It’s clear Under Armour has a rising star in Curry, globally, at a time when investors have questioned where growth is going to come from. The stock has slid this year after multiplying 24-fold since going public. International could hold the key.

For NIGHTLY BUSINESS REPORT, I’m Sara Eisen from Taipei.

(END VIDEOTAPE)

HERERA: Good for him.

MATHISEN: Yes, he’s a nice guy it seems.

HERERA: That’s what I heard. We wish him the best of luck.

MATHISEN: The first to break it.

HERERA: Welcome back.

MATHISEN: Thank you. Good to be back.

HERERA: You were missed. You can’t go way again.

All right. That does it for NIGHTLY BUSINESS REPORT. I’m Sue Herera. Thanks for joining us.

MATHISEN: And I’m Tyler Mathisen. Vacation is pretty good, by the way. Have a great evening, everybody. We’ll see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2016 CNBC, Inc.

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply