tv Nightly Business Report PBS October 13, 2011 6:30pm-7:00pm PDT
>> susie: investors go gaga for google, sending the stock up after the closing bell. the web giant's latest earnings beat estimates and then some. >> tom: it's 11 years in prison for hedge fund founder raj rajaratnam. that's his sentence for insider trading. >> when people see a sentence like that, they're going to think twice about doing this sort of thing. >> tom: it's the longest sentence ever for that crime. it's "nightly business report" for thursday, october 13. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: good evening and thanks for joining us. google shares take flight after hours, jumping over $30 a share, susie, after the web giant crushed analyst estimates with its latest earnings. >> susie: tom, profits surged 26% and revenues posted an even bigger gain. here's how the numbers stacked up. google earned $2.7 billion, or $9.72 a share, almost a dollar ahead of analyst's estimates. revenues were also better than expected, up 33% to $7.5 billion.
>> tom: joining us with more-- scott kessler. he follows google as senior director of technology research at s&p capital iq. with us tonight in new york. scott, how do you describe these quarterly results from google, blew estimates out of the water. >> yeah, tom, i would say having covered the stock for more than seven years, probably between good and great. google over the years has really delivered time and time again. this quarter was no exception. what was surprising to us was the combination of accelerating revenue growth for the fourth straight quarter as well as continuing improvement in margins reflecting well controlled costs and expenses. that's a combination that i think investors seem to like after-hours. i want to ask you about expenses because we see's big increase. lots of hiring going on but it still owns two-thirds of the internet search market according to the latest statistics and tonight's report, google is making even more money per click,
two-thirds of the internet search market goes to google. is it going to continue to dominate web advertising? >> we see no reason, tom, that google won't continue to be the leader when it comes to not only search advertising but they've started to frame up the significance of some of their nonsearch advertising businesses, whether you're talking about display advertising or in mobile. google is making significant inroads there. it's one of the reasons we think they were able to outperform so dramatically in the third quarter. >> tom: in a big, big way. you mentioned cost control, despite hiring more than 2600 people. new employees in just the past 90 days. what about the long-term results of this kind of hiring trend that we've seen over the last several quarters, thousands of new employee, lots of new spending. >> right, when people think about a 9% unemployment rate in this country, my sense is they're probably not focusing on google. because they continue to hire people. they indicated that the
increase in hiring to a large extent reflects new college graduates on boarding the can. the reality is they have a number of new protect s and new initiatives all the while reigning in and closing some efforts that-- we expect the company to really try to strike this balance of growth and expenses and they've been doing a good job of that over the last couple quarters. >> tom: you talk about new products and google is famous for new products. but still, 97% of its revenues in the past quarter came from advertising. this is still an advertising company. the an drid smart phone software is number one for smart phones with market share. when is this going to be a big part of its business, though. >> was's important to understand is that even though advertising is clearly the name of the game, for google specifically, if you think about all their new initiatives, they largely kind of drive traffic and users and activity to the advertising
monday at thization engine. so you think about google plus. they communicated that they now have 40 million people using that platform right now. and the thought is more users, more activity, and more advertising revenues eventually. that's kind of business model. you talked about android. that's a free operating system in the mobile world. it's going to drive advertising sales as well. >> tom: scott, just 15 seconds left. google shares, bid up tonight by $30, still a triple digit stock. guy it or sell google. >> tom, we have a hold recommendation on google after the results. we actually increased our 12 month target price to $625. we see the stock trading in line with the broader market over the next year. >> narrator: scott kessler, there he is, director of technology research tonight at s&p capital iq. thanks, scott. >> thanks, tom, take care. >> susie: 11 years in jail-- that's the sentence fallen hedge fund billionaire raj rajaratnum
>> tom: less than a day after congress passed three major trade deals, we're learning the u.s. trade deficit narrowed slightly in august as imports fell a little more than exports. the commerce department says the deficit dipped to $45.5 billion in august, the lowest gap in four months. >> susie: 11 years in jail-- that's the sentence fallen hedge fund billionaire raj rajaratnum got today for his role in a massive insider trading scheme that rocked wall street. the judge also ordered rajaratnum to forfeit nearly $54 million. the former head of galleon group was convicted of securities fraud and conspiracy in may. out of 26 people charged in the case, 25 have pleaded guilty or were convicted at trial of using
illegal stock tips. suzanne pratt was in the courtroom today and has the story. >> reporter: the government called him the modern face of insider trading. and so it was that raj rajaratnam received the longest sentence ever for such a crime. a stone-faced rajaratnam stood before a packed courtroom as judge richard holwell read the sentence. the 54-year-old sri lankan native declined to make a statement, and did not testify during his two-month trial. at 11 years, the sentence fell far short of the two decades the government wanted. prosecutors argued rajaratnam deserved a hefty penalty because it will impact the behavior of others in the future. defense attorneys asked the judge to consider rajaratnam's charitable deeds and poor health. the judge said those things were a factor in the lighter sentence, but added that insider trading is a virus in our culture that needs to be eradicated. legal expert david rosenfield said today's sentence will certainly help. >> 11 years has a great
deterrent effect on future activities like this, insider trading. when people see a sentence like that, they're going to think twice about doing this sort of thing. >> reporter: rajaratnam was also fined $10 million today and ordered to begin serving his time by november 28. his lawyers asked that he be sent to a prison in north carolina. no doubt rajaratnum will be in good company, as it's the same facility where bernie madoff is serving his life sentence. suzanne pratt, "nightly business report," new york. >> tom: still ahead-- the world's biggest auto maker hopes to increase its business in the u.s. with a new bug. we kick the tires of the new vw beetle with volkswagen's top guy in america, jonathan browning. >> susie: one of the world's biggest construction companies is seeing a pick-up in infrastructure projects in the u.s. skanska, the giant swedish company, has been winning more projects in the u.s. over the past six months.
it's a major contractor rebuilding the world trade center, the brooklyn bridge, and the new york subway system. i met with the president of skanska's u.s. operations in the new subway tunnel the company is building 100 feet below new york's second avenue. as we continue our series, "how to fix the economy," mike mcnally told me that if president obama's jobs bill goes through, it could create more construction projects like this one. >> if $140 billion is a lot of money. but you got to understand we need significant investments in our infrastructure to keep us competitive in the world. right now we spend 2% of our gdp in the u.s. on infrastructure costs. china spends 9, europe spends 5. so it helps. but it's not a big help to be honest to you. it's just not a lot in such a big industry. >> susie: mike, a lot of people are wondering what is the economic benefit of the shovel-ready infrastructure projects. do they really create long-term jobs or is it a short-term fix?
>> no, i think it is absolutely a long-term fix. once we get our infrastructure right i think you'll see the private sector surge. i mean the stimulus itself of these jobs will help, obviously. and then those jobs will be over. but now you will have a country with a great intra structure, will you have people coming here, coming here to stay. businesses coming here to stay. because we're losing our competitive edge as a country because of our infebruary-- inferior, growing more and more inferior every day, infrastructure. you go to these big cities across europe and even asia and latin america now, you are seeing, they are jumping ahead of us. >> susie: i was talking to tom friedman the other day about his book that used to be us. he said historically the key driver of america's economic success was its superior infrastructure. and now we don't centre that competitive. can we restore our roads and rails and bridges? and if so, what will it take to do that? >> well, first of all, we just have to spend more money on it, as simple as that. part of that has to be, no one wants to increase the
gasoline tax, but you can't have the same gasoline tax. same 18.4 cents. that needs to be increased but no politicians want to do it because they are afraid they won't get voted in. we should get the private sector to invest in the. public private partnership are a big part of what other countries are doing. they are doing a lot of it in europe, a lot in latin america, u.k., canada is doing where they have private entities come in and spend their money building this infrastructure so the government is not going in debt. >> susie: but don't you need the government to be the prime motivator. >> i would say. i would say. the government does need to take control over it. in the end it is going to be their piece of infrastructure because it is to the really private, usually these are 20, 30, 50 year concessions so they absolutely need to be involved. >> susie: everybody talks about china. it builds an entire rail system in a matter of months and here we are on the new york subway system and it's taking yearsnd years. why is it? is it because of money or because you don't have the right kind of workers?
>> oh no, no, believe me, it's not the worker. the workers in the u.s. are world-class, best in the world. we're an international company and i can tell you there is nobody like the american trade craftsmen. but what you have to understand this is an old city and you, this particular subway project, you are bothering holes right through it. some of those chinese projects are greenfield projects where you just don't have to disturb the neighborhoods, you where you are not driving through the middle of utilities and things like that. so it's tough. and we also have more bureaucracy. we have more layers, and environmental and all kinds of bureaucracies that slow things down. >> susie: let's say everything goes well in washington, we get some kind of jobs legislation. how many jobs will the u.s. construction industry create with that? >> wild guess, several hundred thousand jobs can be created by investing more in our ininfrastructure and put a big dent in our current situation. you have to remember, 20% unemployment in the construction industry, a lot of those folks are collecting unemployment checks. and would rather have jobs. >> susie: thank you, mike,
thank you so much, really great talking to you here in the new york subway system. >> thank you, great talking to you, thanks. >> susie: blackberry is back. after days of outages, research in motion says it has finally fixed the glitches frustrating millions of blackberry users. but the company says the backlog of emails and messages is still creating delays for some users. as many as 40 million people worldwide suffered service disruptions after a key piece of
switching gear failed, followed by the failure of rimm's backup system. that led to a very public apology posted today on youtube by rimm's co-c.e.o. mike lazaridis. >> since launching blackberry in 1999, it has been my goal to provide reliable, real-time communications around the world. we did not deliver on that goal this week, not even close. i apologize for the service outages this week. we've let many of you down. >> susie: but not much of a letdown for investors. surprisingly, tom, the blackberry outage has had minimal impact on rimm shares-- they fell 27 cents today to close at $23.61, and that's just above where the stock closed on friday, before those problems began. >> tom: susie, so far, rimm is staying mum on any plans to compensate disgruntled users. let's take a look at tonight's "market focus."
the pace of earnings season picks up, but the major stock indices ended mixed. technology stocks were the strongest area of the market, even before google's quarterly results we mentioned at the beginning of the program. this exchange traded fund follows the nasdaq 100, up about 1% today. this is the past 90 sessions. it's up about 14% since the low last week, and is about 50 cents away from erasing the losses from the july sell-off. semiconductor stocks led the technology buying. micron was at the top of the chips, up 6%. nvidia gained almost 6%. nvidia has been getting more active in the mobile smart phone business. and qualcomm was up more than 2%. we learned today qualcomm will have its chips inside the new iphone 4s, which is released tomorrow.
while tech stocks were strong, if roose enmonday when the share price fell 2.20 a two year low. while tech stocks were strong, financial stocks were the biggest drag, even though j.p. morgan reported better than anticipated earnings. it's the first major u.s. bank to report third quarter results. strong lending and consumer banking helped profits. that didn't help shares today, sliding almost 5%. volume was strong as the stock dropped from a one-month high yesterday. the bank struck a cautious tone, though, pulling back ambitious expansion plans for bank branches, and cutting 1,000 jobs from its investment banking operations. that outlook hit other big banks ahead of their earnings next week. bank of america and citigroup each dropped more than 5%; wells fargo was off 3%.
with two advances after the close tonight, credit rating agency fitch put several banks on notice for possible downgrade. it's a broad review of what fitch calls global trading and universal banks. seven global banks, including morgan stanley and goldman sachs, were put on review for a possible downgrade to their credit ratings. four other european banks had their credit standings cut due to more regulations and new challenges for the global financial markets. beyond banking, we saw the stocks of asset managers slide. investment firm macquarie cut its opinion on legg mason and affiliated managers, calling the stocks over-valued. legg mason fell almost 5%. affiliated dropped 3.5%. in the commodity markets, the softs had it, while silver did not. coffee and sugar prices rallied more than 3% each; silver fell below $32 dollars an ounce. and that's tonight's "market focus."
>> susie: the world's biggest auto maker hopes the oprah effect will help it pick up speed in america. today, volkswagen delivered hundreds of its iconic beetles to audience members who attended an oprah show. as diane eastabrook reports, the marketing ploy is part of an overhaul vw hopes will bring in more buyers. >> reporter: one by one, jonathan browning, volkswagen america president and c.e.o., handed over the keys to new beetles to former guests of the oprah winfrey show. the talk show queen gave away the cars to nearly 300 audience members during a program taped last year. joan burns was among 22 in the chicago area picking up her bug today. >> i love it, i love it, i love it. >> reporter: volkswagen hopes the boost it gets from oprah will bump up sales of the iconic beetle. the car came to the u.s. following the second world war and developed a cult-like following in the 1960s. it was discontinued in the late
'70s and reintroduced in 1998. sales peaked shortly after that, but then began sliding. >> one of the things that would strike you if you're standing further away is the overall shape is less upright. >> reporter: browning thinks the new design on the 2012 beetle will capture more buyers, particularly men who might be attracted by its wider, more masculine front. >> we think this new design will bring in many people, many backgrounds, and it's probably the one car in the industry that all my family agrees they'd like to drive. so i think we'll see a lot of people driving the new beetle. >> reporter: leonardo gilbert was skeptical about owning a "chick car." but now, he's a believer. >> boy, when i sat down in it, there's a transformation that takes place. this is not the old beetle; this is the new beetle. >> reporter: volkswagen needs owners like gilbert if it hopes gain traction in the u.s. vw, whose brands also include porsche and audi, is ranked eighth here in terms of sales. but globally, it's number one.
volkswagen is building its passat at a new plant in tennessee that employs 2,000 people. browning says building vehicles here and ramping up u.s. sales is crucial. >> to be strong globally, we have to be strong in the u.s. the u.s. is such an important market, and so we've committed a $4 billion investment program specifically to the u.s. new products like this wonderful new beetle. >> reporter: analysts think vw can be a bigger player in the u.s. if it spiffs up its products and markets them better. >> volkswagen needs to be more aggressive. they need to be more efficient. and the good news for them is, to be a powerhouse in the u.s. market is you have to make the cars that people want to buy and you have to make money selling them. >> reporter: browning says, right now, volkswagen isn't focused on being the number one auto manufacturer in the u.s. but it is focused on reinvigorating the vw brand with help from the new beetle. diane eastabrook, "nightly
business report," orland park, illinois. >> tom: here's what we're watching for tomorrow: mattel releases its quarterly earnings. we'll also see the september reports on retail sales and import prices. tomorrow's "market monitor" says since stocks have flirted with bear market territory, investors should look for companies paying dividends. he's robert stovall, managing director and strategist at wood asset management. >> susie: attention, gap shoppers-- you'll soon see fewer stores in the u.s.. the company is closing locations here as it expands overseas. the long-struggling apparel chain will close more than a third of its u.s. gap brand stores over the next two years, leaving it with about 700 locations. at the same time, the company's growing in china, doubling its stores in the asian nation by about 400 over the next couple of years. >> tom: solyndra's president and c.e.o. has called it quits. brian harrison stepped down last week, according to a bankruptcy court filing from the solar maker.
the company folded last month, despite receiving a $528 million federal loan. shortly after that filing, harrison was among the company's top executives to repeatedly plead the fifth amendment and refuse to answer questions from a congressional panel. solyndra now wants to appoint a high-profile bankruptcy expert to run firm.
>> susie: with hedge fund founders heading to jail and protestors challenging corporate america, tonight's commentator has some thoughts on restoring trust in america. here's jamie merisotis, president and c.e.o. of the lumina foundation. >> reporter: with all of the recent talk about budget deficits and trade deficits, the deficit i'm most worried about is our national deficit of trust. just look at the historically low levels of public trust in our political leaders, or the growing distrust in corporate integrity reflected in the occupy wall street protests. no industry or sector is immune, even higher education. with tuition rates on a steady climb, and with scientific studies questioning how much students really learn, colleges and universities are now facing the same kind of critique. let's be clear-- for the u.s. to remain competitive, we'll need more college graduates. two-thirds of all jobs being created require education beyond high school.
yet today, less than 40% of americans have a college degree. the nation's economic future depends on colleges and universities keeping the public's trust. they can do this by better serving adults, minorities and other populations that have been under-served. they can focus on quality and transparency by showing that the most important outcomes of higher education aren't s.a.t. scores or football scores, but what students actually learn. and they can use technology to deliver higher education at an affordable price to a lot more people. now is the time for the higher education sector to show that our trust has been earned. the nation's economic and social future is riding on it. i'm jamie merisotis. >> tom: you can follow nbr anytime-- we're online at nbronpbs.org. there, you'll find all the market data from the program. you can also follow us on twitter @bzrpt, or my personal feed, @hudsonnbr. if tweeting isn't your thing,
friend us on facebook at bzrpt. >> susie: finally, a big gamble by dc comics has paid off in a big way. the company rebooted its entire line of superhero titles last month, and the result has been huge. five million copies of its new comics have been sold since then, the highest sales numbers in more than 20 years. the most popular titles include "justice league," "superman," and "wonder woman." and that doesn't include digital copies viewable on tablets like apple's ipad. tom, along with new costumes and new stories, new technology like those tablets and smart phones are luring both new and lapsed comic fans. >> tom: you don't want to put the silly putty on the ipad for the comic to get that to peel off. doesn't work that way. still need the old school comic book for that. >> susie: only you would know that, tom. >> susie: that's "nightly business report" for thursday, october 12. i'm susie gharib. good night, everyone, and good night to you, too, tom. >> tom: good night, susie. i'm tom hudson. good night, everyone. we hope to see all of you again tomorrow night. "nightly business report" is