NBR Transcripts-November 23, 2009
Monday, November 23, 2009HP Serves Up Profits
SUSIE GHARIB: Higher profits, lower revenues, that's what Hewlett-Packard said after the bell today about its latest quarterly results. The PC maker confirmed the numbers it pre-announced last week. Excluding items, profits rose 14 percent to $1.14 a share, but revenues fell 8 percent to about $31 billion. So what do today's numbers mean for HP and the tech sector? Standing by with some answers, Scott Gurvey. Scott.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susie, the big takeaway here is that HP's increase in profits comes mainly from cost cutting. Profits were down in the hardware sectors, that's PC's and laptops and such and up slightly for printers. Where the company did best is in its newer areas of software and services. Last year, HP bought EDS, giving it a big stake in the services sector and just this month it bought 3Com, giving it more ammunition in networking. I talked today with analyst Tom Smith of Standard & Poor's who credits the EDS acquisition for HP's improved results.
THOMAS SMITH, COMPUTER ANALYST, STANDARD & POOR'S: HP's acquisition of EDS brings a substantially larger service operation to the overall deal. This gives you steadier earnings, longer-term contracts and helps you offer more of a one-stop shopping solution to combine the hardware software and the services to set it up and to maximize your ability to use the equipment to the best effect.
GURVEY: It was actually IBM which began this shift toward one-stop shopping. Big blue grew its own services business to add its hardware and software products. Dell has also been trying to diversify. It recently acquired Perot Systems, another services company, although one much smaller than EDS. But it is still struggling with this new business model.
GHARIB: So tell me a little bit more about Dell. How does Dell fit into this whole picture, Scott?
GURVEY: That's a good question because it hits on another one of Dell's problems. There's a lot of competition out there, Acer and Asus, Toshiba, even Sony are all making PC's aimed at various segments of the market and that is an area of the market that Dell has been trying to focus.
GHARIB: One thing Scott and I'm sure you've heard this is that the CEO of Hewlett-Packard said today that looking ahead, he's seeing more business in Asia, that it is very strong there, that the U.S. is turning the corner. Europe is flat but it is stable. Is this specific to HP's future growth or is this something, are you seeing an uptick in technology across the board?
GURVEY: Well, you know we've heard lately from tech leaders and CEOs at Intel and Cisco, they both told us they have been seeing similar strength. So that with fingers crossed, there is some cautious optimism out there, that this is a worldwide phenomenon.
GHARIB: And is it still going to be more in the services side of the business rather than the hardware side? Is that the case? Is that how you see it going?
GURVEY: Yes and no. Certainly services is where the growth is, that is there is no question about that when you make comparisons. However, we do have the situation where companies because of the economic conditions have put off purchasing hardware for quite a long time. And so that's what Cisco is seeing. That's what Intel is seeing. There is this refresh cycle, as they say, in which people are expecting there to be at least here a group of PCs and routers and things like that purchased as people begin to upgrade their equipment.
GHARIB: We'll see where all that goes. Thank you so much, Scott, for the update.
GURVEY: Thanks, Susie.
GHARIB: New York bureau chief, Scott Gurvey reporting.
The Shadow Inventory
SUSIE GHARIB: Good housing numbers cheered Wall Street today. Sales of existing homes were up 10 percent in October. But is the stock market reading the housing market correctly? The answer depends in part on a factor called the shadow inventory. Darren Gersh explains.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: In this economy, most any business would be happy with a 10 percent jump in sales. But economist Dean Baker says the housing market remains weak. He argues the first-time homebuyer tax credit has distorted sales.
DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC POLICY AND RESEARCH: What was going on here is we borrowed a lot of sales from the future, so people rushed ahead to buy before the tax credit ended and then once you came within sight of that ending, in October and certainly this month, sales have just fallen through the floor.
GERSH: Officially, the data on home sales show improvement -- prices appear to be stabilizing and inventory is officially at seven months, down from double digit highs last spring. But Baker says that ignores what's called the shadow inventory. That's roughly one million homes that aren't counted for sale because they are in some stage of foreclosure.
BAKER: And this is in the context of a market that is supporting say around five million homes a year, so it is very big relative to the demand in the market.
GERSH: With so many homes still not on the market, Baker thinks prices will fall another 10 percent. But Lawrence Yun is more optimistic. He's chief economist for the National Association of Realtors. He says the figures show banks are selling foreclosed homes into a market that increasingly wants them.
LAWRENCE YUN, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF REALTORS: Month after month, we see continually steady trimming of the inventory, which would suggest that even with shadow inventory appearing, that there is enough buyers to quickly absorb the inventory.
GERSH: Still, there are so many homes out there, Yun expects prices to remains soft next year. And he doesn't expect double digit price appreciation to be seen again for another generation.
YUN: I think in light of the fact that we went through a boom and bust, there will be more caution among consumers.
GERSH: The shadow inventory isn't the only drag on the market. Analysts say there are also many homeowners who want to sell, but are waiting for prices to recover. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Careers for the Next Decade"-Asian Business Specialist
SUSIE GHARIB: These days, finding a good job isn't easy. But one way to improve the odds is to train for an up-and-coming field. This week, we're looking at careers for the next decade. Our first pick is something called Asian business development specialist. Asia is an important market and production center for U.S. firms. And as Suzanne Pratt reports, that's opening up new opportunities for Americans in the region.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Meet Dan Rosen. He is in Beijing on one of his frequent trips to China. On this visit, he is a panelist at a conference on China's energy supply.
DAN ROSEN, RHODIUM GROUP: China today, the energy profile is an industrial energy problem.
PRATT: As an Asian market expert based in New York, Rosen advises a range of companies. And he says there's a growing need for his expertise.
ROSEN: Every business needs to know what competitive forces are changing its bottom line, what's happening in the industry. Ten years ago China was essentially insignificant. For the most part it was something that might happen tomorrow. So tomorrow has arrived. And, every industry, everyone on the planet is being profoundly impacted by the what's happening in the Chinese economy.
PRATT: In the past decade, companies in almost every industry have hired Rosen for his advice on doing business in China or on how China might affect operations in a firm's own backyard. Rosen says his recommendations used to be mostly on business strategies. Today, firms increasingly want to know how to reach Chinese consumers. Companies are interested in what sectors are best to invest in, how to cope with Chinese regulations and what pace of investment makes sense. Many also want his outlook for Chinese labor costs, forecasts for China's GDP and dollar-yuan exchange rates. There are many types of China business specialists. Some are big- picture guys like Rosen. But others specialize in particular industries such as finance or textiles. Tom Monaco handles international career placement at Columbia University's business school. He expects more students to focus on jobs dealing with the Asian marketplace.
THOMAS MONACO, DIR. INT'L ADVISING, COLUMBIA BUSINESS SCHOOL: I think they realize that there is a lot of growth potential in China. So, I do think that increasingly students are looking at that and taking that and considering it as a viable option for some long-term career growth.
PRATT: Rosen majored in Asian studies and economics in college. He also learned mandarin and earned a graduate degree in foreign service. Twenty years ago, when he was looking for an international career, he had no idea where it would lead him.
ROSEN: I had no doubt China was going to be an extraordinary story. I didn't know it would be such a market economic dynamo.
PRATT: People looking to do Asian business analysis, could be employed by corporations, consultancies, non profits or governments. In addition to his work as a consultant, Rosen also serves as an economist with a Washington think tank and as a professor. He teaches a graduate seminar on China's new marketplace at Columbia University's school of international and public affairs.
ROSEN: We have China in red here. Germany right next to it. How many people realize that Germany was the biggest exporter on planet earth?
PRATT: Many of his students are hoping one day to do what Rosen does which he says has been a dream career.
ROSEN: Absolutely exceeded my expectations. I consider myself one of the luckiest people in the world. I don't know very many people who have as interesting a job as I do.
PRAT: Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Commentary"- A Trip to Education City
SUSIE GHARIB: Tonight's commentator says there are lessons to be learned from Qatar's education city. She's Nada Eissa, associate professor of public policy and economics at Georgetown University.
NADA EISSA, ASSOC. PROF. PUBLIC POLICY & ECONOMICS, GEORGETOWN UNIV.: As is usual for me each fall semester, I teach economics to Georgetown University students. Except, this time it's not in Washington DC, but at our campus in Doha, Qatar, a tiny peninsula off the coast of Saudi Arabia. I hadn't thought of my visit as much more than an adventure, but my three months there got me thinking and a bit worried and not for reasons you might expect. Qatar's education city is home to several major U.S. universities including Cornell and Carnegie Mellon and about 1,500 students and it is truly a fantastic experiment. The massive investment in higher education we see in Qatar today is in fact taking place worldwide. We see that in the 140 million students in higher education institutions, four times as many as in 1970. And, China now has more higher education enrollments than we do.
What does all of this mean for those of us in the United States? For sure, we benefit from a more and better educated population overseas. But we also face some risks. Because as everybody else invests in higher education, the United States will no longer be the obvious choice for the world's talent, both students and faculty. I've seen this happen in our own searches for young faculty, lured away by attractive offers from foreign universities. The competition is not exactly fierce today, but if we continue to lose talent, how can we maintain the best universities for your kids and mine? And how can we maintain our edge in innovation and economic competitiveness? Let's start by recognizing that the world is different. I'm Nada Eissa.
Food Banks are on the Verge of being Overdrawn
SUSIE GHARIB: Americans will sit down to Thanksgiving dinner this Thursday, but this year many will get their meals from food pantries and soup kitchens. Currently one in seven Americans is struggling to get enough to eat. As Diane Eastabrook reports, food banks are struggling to feed everyone who needs help in this tough economy.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Like a general, Kate Roche is preparing for an invasion. Roche and about 50 volunteers at Chicago's Irving Park community food pantry are furiously bagging food and bracing themselves for the invasion of hungry clients picking up Thanksgiving food baskets. Recipients will haul 500 baskets out the door this year, about 150 more than last. This pantry has been around about 25 years and it typically sees senior citizens and the chronically unemployed. But, about a year ago it began seeing a new kind of client: the first-time unemployed worker. Tim Burris is one of them. He's been jobless for two years and comes to the pantry each week.
TIM BURRIS, BASKET RECIPIENT: I've been looking. I've been filling out applications, but nobody's been calling me. Because of the way the economy is right now it's hard for anybody to find jobs.
EASTABROOK: Rising unemployment is sending more Americans like Burris to food pantries for help. Feeding America -- which represents hundreds of food banks and pantries nationwide -- says demand is up more than 20 percent this year over last. Chicago pantries get most of their food from the greater Chicago food depository and it's feeling the pantries pain.
KATE MAEHR, EXEC. DIR., GREATER CHICAGO FOOD DEPOSITORY: It's harder today to get food than probably at any point in our history.
EASTABROOK: Executive Director Kate Maehr walks me through the massive food warehouse that distributes about 60 million pounds of canned goods, produce and meat a year. The depository gets some things like orange juice from the government, but it mostly counts on food companies to give it mislabeled or excess food. Maehr says the tough economy is forcing those firms to better control inventories and assembly line mistakes. So, that means fewer donations. How do you make that up? Are you getting it through donations? Are you getting it through other people donating?
MAEHR: Well increasingly we're having to make it up by purchasing food. So, in the case of this food bank, we'll probably purchase about $6 million worth of food this year. Ten years ago we weren't purchasing food at all.
EASTABROOK: The Irving Park community food pantry has been turning more to its neighbors, who frequently pull up to its doors and unload food. Still, executive director John Psiharis worries at some point the pantry will run dry.
JOHN PSIHARIS, EXECUTIVE DIR., FOOD PANTRY: We're very grateful for the outpouring of community support that we've had, but obviously the need is great.
EASTABROOK: The pantry is also grateful that it could provide Thanksgiving dinner this year to everyone who asked for it. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
Paul Kanags' Stocks in the News
PAUL KANGAS: An opening rally for Wall Street after three straight losing sessions. Strong housing data helped the bull run as October's existing home sales jumped 10 percent. That restored investors confidence in the economic recovery. Incidentally, we'll have more on today's housing report in a moment. By 11:00 a.m. the Dow had surged 154 points, NASDAQ up 57. Light trading volume slowed the rally down this afternoon, but a weak dollar and a healthy showing by commodity stocks helped the market close with most of its early gains intact. The Dow Industrial Average ended up 132.79 points at 10450.95. The NASDAQ Composite up 29.97 at 2176.01. Standard & Poor's 500 Index added 14.86 points to 1106.24. In the bond market, the 10-year note climbed 5/32 to par 6/32, putting the yield at 3.35 percent. Big board volume leader today on 26.3 million shares, Citigroup (C) moving up $0.08.
Followed by Bank of America (BAC) with a $0.20 advance.
Pfizer (PFE) was up $0.17.
General Electric (GE) $0.43 gain there.
And then AT&T (T) up $0.76. You just heard the company is offering its new short-term Internet service for laptops and in addition, this week's "Barron's" financial has an article with one analyst saying the loss of iPhone exclusivity will hurt AT&T's subscriber base. But another analyst says it's already discounted in the price of the stock and says the stock is worth $34 a share, especially at the attractive 6.3 percent dividend.
Sprint Nextel (S) $0.14 gain.
Merck (MRK) was down $0.04.
Ford Motor Co (F) $0.09 advance.
Weatherford Intl (WFT) a $0.63 loss. And then JP Morgan Chase (JPM) with an $0.82 gain.
Verizon Communications (VZ) up $0.90. This week's "Barron's" also points out this company has a very good yield of 6.2 percent.
Cigna (CI) up $2.27. JPMorgan upgraded it from "neutral" to "over weight," did the same upgrade for Wellpoint, which was up $2.38.
And then Cadbury Plc (CBY) moving up $1. Nestle apparently is keen to get into the bidding war along with Kraft, Ferraro and Hershey, the bidding war for Cadbury.
Campbell Soup Co (CPB) edging up $0.48. The company out with first quarter earnings up 17 percent from last year at $0.87 a share. That was $0.06 better than expected despite a 2 percent drop in revenues, but the company sees 2010 revenues rising about 5 percent.
Big gainer of the day is Financial Federal (FIF) jumping $6.06. Peoples United Financial Corp. will acquire it for one share of its stock plus $11.27 per share in cash. That deal worth about $27.30 today with Financial Federal shareholders.
Jefferies Group (JEF), the brokerage, down $1.58. Goldman Sachs downgraded it from "neutral" to "sell."
On the other end, another investment boutique, Evercore Partners (EVR) up $1.45. Goldman Sachs upgraded this one from "neutral" to "buy."
And then oil and gas exploration firm, Penn Virginia (PVA) rising $1.16. ST Robinson Humphrey brokerage upgraded it from "neutral" to "buy" on a valuation basis.
Apple (AAPL) NASDAQ (sic) topped the actives at -- up $5.96, nice move there.
And Google (GOOG) did well today, up $12.39.
Microsoft (MSFT) rising $0.32.
Amazon.com (AMZN) up $3.34.
Research in Motion (RIMM) edged up $0.28 a share.
Intel (INTC) $0.16 rise.
Cisco Systems (CSCO) gaining $0.44.
But Cephalon (CEPH) tumbling $5.15. An experimental drug that the company hoped to add to its product line up was disappointing in a trial of patients with a rare esophageal inflammation.
Baidu (BIDU) $11.41 gain.
And then came Dell (DELL) up a half a dollar a share.
Elsewhere in NASDAQ trading, Origin Agritech (SEED) jumping $5.24, huge percentage move on news the company received final approval from the Chinese government to market its genetically modified corn seed.
And those are the stocks in the news tonight.
