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Quest Means Business
Goldman Sachs Posts Strong Earnings; Apple Sues Samsung
Aired April 19, 2011 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS: Strong earnings from the heavyweight Goldman Sachs, but will it go into the green or red Q25?
From iPhone wars to clone wars, Apple is suing Samsung.
And tonight on this program, Michael Dell tells me it is about selling services, not shiny boxes.
(BEGIN VIDEO CLIP)
MICHAEL DELL, CEO, DELL COMPUTER: We are, you know, at the very beginning of a kind of a new phase of growth for the next 25 years.
(END VIDEO CLIP)
A busy hour ahead because I'm Richard Quest, and yes, I mean business.
Good evening.
Goldman Sachs says the future is bright, after smashing expectations in its quarterly earnings. On this program tonight we take a close look at the numbers moving the markets and Goldman Sachs is leading the way.
Goldman comfortably beat expectations. It posted first quarter profits of 2.7 billion. That is $1.56 per share. Analysts had been expecting profits of only 82 cents a share. The company also said the indicators for economic activity, worldwide, positive.
Elsewhere the health care group, J&J shook off recent legal troubles, with better results. Quarterly sales grew 3.5 percent. The shares are currently the Dow's top performer. Texas Instrument's shares have fallen after it missed analyst's estimates. The chipmaker says it took a $30 million hit because of the earthquake in Japan.
The three companies are all included in out exclusive Q25 index. The index is where we bring you the earnings and you help make sense of where the profit trends are heading. You see, we take the earnings. And we put them into a variety of criteria. We look for example, if companies meet or exceed our strict criteria. They include sales growth of 10 percent. Beats earnings expectations, by 5 cents a share. Positive quarter, profit growth of 50 percent positive outlook for 2011. Now, remember, get four or five of one and you get the color automatically. Three and two in either direction and Maggie Lake and myself have a debate on the Q25. Those are the criteria. We need to start with Goldman Sachs.
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Yes, Richard, Goldman, we had a little bit of a chat about this. Three out five, year on year comparisons were pretty tough, but they did really good quarter over quarter. The trading business really bounced back. They beat expectations, as you mentioned; positive about the future.
But this one, I don't know, I have some trouble with this one.
QUEST: OK, what is your reservation on the numbers, Maggie, frankly, the numbers suggest that it should have been a green. Even though the profits were down, they did handsomely beat expectations. So why are you being so curmudgeonly?
LAKE: Yes, and I think they do have to get a green. Here is the problem. Trading is back, but is it sustainable. This is what investors are really worried about. Trading is notoriously a volatile business. And on their conference call, importantly, the executives themselves said, listen, the trading activities we saw back in '09 and early part of 2010, isn't going to happen again.
QUEST: Right.
LAKE: They were illiquid markets, it was a special environment that we were able to capitalize on. But that is over. And they are also not ramping up their leverage. They say their clients are still cautious. They are lagging in M&A. So there are reasons to be concerned about whether Goldman can continue to post its performance. But this quarter is a green. I just think it is a grudging green.
QUEST: A GG, a grudging green, is one of the areas where we can give the color.
Let's talk about Johnson & Johnson. Three out of five, towards the red, it suggests it should get a red. Because we didn't like that-the particular way in which it made its money?
LAKE: Yes, that is right. And one of the reasons, one of the things that helped it was a weak dollar. And you know, I don't count that, because, you know, it is never the other way around. So, that is not good enough. So, J&J still is struggling from all of these product recalls they have had. There are real issues with their safety, with their compliance. And it is not clear from this that they are out of the woods on that. They have resolved all those problems. They are doing better, but they still have work to do. Sales in the U.S. were down. So, I think they boosted their full year outlook, but it looks like they are banking on a possible merger, they are looking at. So, I think this is a little iffy. I think we have to give this one a red.
QUEST: It is a double R, a reluctant red. We can move quite quickly, Maggie, through the next ones. Because obviously, Novartis got four out of five, so it is an automatic green for Novartis. And we both like the look of the way their profits, their drug pipeline is looking. The product is coming along. The company seems to be performing well. And it seems to have momentum in its direction. It is gets a green.
Texas Instruments didn't any of our criteria. Remember that five criteria. It is an automatic red.
LAKE: But!
QUEST: You like-you didn't.
LAKE: But!
QUEST: Ah, what?
(LAUGHTER)
LAKE: It is true. It is an automatic red. But I will say this about Texas Instruments, because I've been watching this company. They did that acquisition of national semi-conductor. They are sort of doubling down, making a big bet on analog chips. Now, it is sort of geeky, but it is important because these are the chips that control power in things like automobiles, laptops, tablet computers, I know you are so fond of, so a lot of analysts really positive about their strategy. It is not just showing up yet. So, watch this space. I think it is going to move into a green in the coming quarters.
QUEST: It failed. It failed. It failed. It failed. It failed, and you-
LAKE: It did.
QUEST: And you still want to give it a respite.
Finally, Tesco got naught out of five, so it gets an automatic-that is the U.K. supermarket. It got naught out of five, so it is an automatic red on our chart. It did poorly in the U.S. It is under pressure in the U.K. It made money in China, but only because everybody is making money in China. Tesco, they have there slogan, every little helps. Unfortunately, not today. Hang on.
Maggie, we have five to four. I think the Q25 is going to prove exactly how tough the trading conditions are.
LAKE: And I'll say something Richard, we are having a lot more ones that are up for debate. We saw much more of a sort of trend going, in the last couple of quarters. But it looks like we're falling back in the situation where a lot of these are mixed. So it is going to be interesting to watch.
QUEST: Maggie, see you tomorrow.
Maggie Lake joining me with the Q25.
The politicians can't agree on the answer. Now the ratings agencies can't even agree on the question. And the U.S. president starts a charm offensive. We are going to ask Moody's chief economist if the outlook is really as grim for the U.S. economy.
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(COMMERCIAL BREAK)
QUEST: With the rating agencies piling on the pressure on Washington, Barack Obama has taken his economic message straight to the people. The president has begun a series of town hall meetings at a school in Virginia, a few hours ago. It comes a day after Standard & Poor's partly blame their negative debt outlook on political squabbles in Congress. The president admitted that when it comes to the deficit, there was a significant split on Capitol Hill.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Hello, everybody. Thank you.
And there is, I don't want to lie to you, there is a big philosophical divide right now. I believe that you have to do it in a balanced way. I believe that you have to, yes, have spending cuts. But you can't cut things like education, or basic research, or infrastructure down to the bone.
(END VIDEO CLIP)
QUEST: Not all the ratings agencies believe Congress won't be able to put aside differences, John Lonski the chief economist at Moody's has a much more optimistic take on the situation. John joins me now from his New York office.
John, always in (UNINTELLIGIBLE) invite one agency's to look at another's comments, but we do it nonetheless, because that is part of the business. You don't think, Moody's is not as pessimistic in terms of a negative outlook on U.S. government debt?
JOHN LONSKI, CHIEF ECONOMIST, MOODY'S: Well we sense a change in momentum. Where with some prodding by the financial markets-oh.
QUEST: Sorry, I don't beg your pardon.
LONSKI: I'm getting a-
QUEST: I think you are probably hearing yourself coming back.
LONSKI: I don't know what happened.
QUEST: So, hopefully that should be OK, again.
LONSKI: Excuse me, sir, but I've received some interference on the- it's not your fault.
QUEST: Can you hear me now, sir? Can you hear me?
LONSKI: I'm very sorry.
QUEST: No, we are having a few problems there. We'll come back to it.
LONSKI: Oh, boy.
QUEST: Well come back to John, in just a moment.
In the moment we will take the opportunity to look at the U.S. market. And the Dow Jones industrials at the moment-
(DESK BELL CHIMES)
-are e trading at up 57 points, 12,259. Half a percentage point gain to the good. It all comes on a day we'll talk about in just a moment; where gold has a phenomenal high of $1,500 an ounce. That is one reason why we'll be looking at that, just at the moment.
Notwithstanding, of course, the Dow's ability to hold on to its gains even though there are these worries about U.S. government debt.
To the European bourses, where the stocks held onto a comeback on Tuesday, the region's major indices rebounded from the biggest drop in a month, that they saw on Monday. Not a big rebound, the luxury sector played a big part. Burberry rallied 6 percent in London. Its forecast for the top end of analysts' estimates, China is the reason for that. LVMH stock jumped about 5 percent after its first quarter revenue beat expectations.
Hopefully, we have whipped the gremlins out of the system and John Lonski in at Moody's can now hear me with a degree of security.
John, we were just talking-
(LAUGHTER)
I mentioned S&P, and you immediately can't hear me. The gremlins, indeed. Look, S&P-
LONSKI: Well, it must be somebody from S&P's is on the line. They did something to the line so I couldn't answer your question. That is all I can figure out.
No, our view is that the two parties, the Republican Congress and the administration are likely to eventually come closer and closer together so that we eventually have something substantial in terms of credible budget deficit reduction. Unfortunately, I'm still convinced that getting there may involve more turbulence, with the financial markets. It may take a deeper sell off of equities. A sharper jump by corporate borrowing costs, before we finally compel the parties in power to get together and solve this problem once and for all.
QUEST: All right. But if you accept that default is simply not an option and will not happen, then we are literally just playing politics.
LONSKI: We are and I think ultimately you are going to find that the Democrats will have to give up more in terms of expenditures than they would like to. And I will add that eventually the Republicans will have to accept the inevitability of some sort of broad-based tax hike, especially on upper income Americans.
QUEST: We are talking tonight, on our Q25 as we look at corporate earnings, in the first quarter, we are staring to see, and I realize you are an economist, not an equities strategist, but we are starting to see a trend, John, where companies are going to find it more difficult to meet, or to certainly exceed expectations.
LONSKI: That is so true. Look at last year, 2010, profits from current production, pre-tax operating profits, that is grew by 29 percent year over year, that is the second best year on record. I think the record was set right after World War II. So, it is going to be extremely difficult to produce the percentage gains by profitability.
QUEST: Right.
LONSKI: In excess of 15 percent. I think we'll do well it profits grow by 10 percent. And thus, if they are growing by average on 10 percent. We are going to have more disappointments in terms of earnings growth in 2011 compared to the previous year.
QUEST: Nominally tonight, gold, $1,500 an ounce. Now, come on, we know if we put it in inflation related terms, it is slightly different. But that is sending a strong message, isn't it? That the current investment ranges are not going to provide the returns and risks?
LONSKI: Yes, there is a large number of investors simply do not have much confidence in policymakers, globally. They are very much fearful of either run away inflation or another collapse by equity prices. So you can look at the price of gold and it reminds us not to be complacent; that there is really no need to view the current situation with any sense of ease. You have got to remain on edge.
QUEST: OK. In a word, forget QE tightening of monetary policy, let's go for the broad-based, Fed funds rate. Does that move in 2011? Do they move on the rates?
LONSKI: No.
QUEST: That's it?
LONSKI: One word, no.
QUEST: That's enough. We'll talk again. John, great to see you as always.
LONSKI: OK.
QUEST: John Lonski joining me there from Moody's, in New York.
If you think that most new smart phones and tablets look the same, well, you might well be right. These are two of them. We'll tell you why this lot are suing this lot, because they say this lot, their phone looks a lot like this lot. In a moment.
(DESK BELL CHIMES)
(COMMERCIAL BREAK)
QUEST: Apple is fighting back against the Android invasion and it is doing it through the court. Apple has filed a lawsuit. Now, this is the Apple-I've got to be careful with these, it is somebody's telephone. You never know what might come up on these things.
Apple has filed a lawsuit claiming Samsung, accusing it of ripping off Apple ideas for its smart phones and tablet. Now, in the filing, Apple says Samsung has chosen to slavishly copy Apple's innovative technology. Distinctive user interfaces, elegant, distinctive product and packaging design, in violation of Apple's intellectual property right.
The lawsuit points the finger at two particular Samsung products. The Galaxy smart phone, and the Galaxy tablet computer. If you come and join me in the corner, I'll show you exactly what I'm talking about. This is what it is really all about. These are the iPhone and the Galaxy S. They do look remarkably similar and what Apple says is all this sort of stuff is exactly what you are seeing what they pioneered here. They put on theirs. And they would claim the same thing for the iPad. They do look remarkably similar.
I have to say, though, one is smaller, and that arguably, makes an appreciable difference, whether you-because that one will fit into your pocket. This one fits into your briefcase. That is the argument. Look at these, that is the Tab, that is iPad, go backwards and forwards, and assuming the machine won't break down, you see exactly the similarities.
Before the lawsuit, they had been playing nicely together. Samsung is Apple's biggest supplier, according to "The Wall Street Journal", with component contracts worth nearly $8 billion.
John Abell is the New York bureau chief for tech site, Wired.com.
They like each other, they fell out, and now they are suing each other. All tablets look the same.
JOHN ABELL, NEW YORK BUREAU CHIEF, WIRED.COM: Disgust-well, all tablets don't look the same. The Playbook doesn't look anything like either of these. The honeycomb device that came out last week, doesn't look anything like these. But ultimately these arguments sort of fail because things tend to start looking like the market leader, pretty early on. And Apple has been involved in these sort of look and feel arguments for decades. They were in the next previous, most famous one with Microsoft 20 years ago.
QUEST: I mean, Apple is never backward a coming forward, is it? When it comes to protecting its patent design and what it says is its intellectual property. Litigious is one way of putting it.
ABELL: Well, sure, but look, you made a point that the Galaxy tab is smaller, and it is. Apple might argue, well, it is a seven-inch version of our design. Apple is maybe not unique but extremely close to unique in putting a premium on the design of their products. There is a deep integration with the design and the hardware and what it can do under the hood. But it puts a lot of thought into design in a way in which almost no other company does; millions and millions of dollars, hundreds of thousands of people hours. So, to have another company to come out with something which is rimmed by aluminum, has a black face, a single button, icons you can move around. You could see whether or not they prevailed, but it would certainly get their goat.
QUEST: Just quickly, before we finish, the RIM, Research In Motion tablet, which they have just brought out, it strikes one that they have arrived at the party late, and arrived with a product too early.
ABELL: Right.
QUEST: The lack of a camera, the lack of a full e-mail integration.
ABELL: Right, right.
QUEST: What I seem to suggest is too little, too late.
ABELL: Well, it is funny, we are exactly one year into the tablet revolution. So, I'm not sure that we're too late. Apple has done remarkably in the first year to set the bar very, very high. But yes, I think on your second part, you are quite right. They have come out with this too early. They are depending on the relationship they have with their existing customers to sort of gloss over these things. There is a lot missing in the Playbook, for sure.
QUEST: John, we thank you very much for joining us. And we'll follow this Apple story and Apple and Samsung. Many thanks, indeed, for joining us.
Now, as Apple and Samsung prepared to do battle over their hardware, Dell, the world's No. 2 computer seller is making a new path for itself. Dell is putting hardware to the back burner and making a bigger push into IT services and the ubiquitous cloud computing.
It was with real pleasure today that I got to speak to Dell company founder and chief exec, Michael Dell. Michael told me that these days it is not all about, at least for him and his company, it is certainly not about selling shiny boxes.
(BEGIN VIDEOTAPE)
MICHAEL DELL, CEO, DELL COMPUTER: In another week or two, it will be 27 years old. And, you know, throughout the history of the company, we have been growing, changing, evolving. Certainly, now, a big, big focus on IT solutions, services, and really helping our customer solve the larger problems. Not just providing the shiny boxes that go into the solution.
QUEST: That is a major shift. When did you realize that that was the shift that had to take place?
DELL: Well, you know, in the early 2000s, as we were marching deeper into the data center, in many corporations, we created more and more powerful products. And we would show up with the customer and say, hey, we've got an even more powerful product. The customer would sort of say, don't really care. What do you know about my business? Can you help me solve my real problem? So we had to learn more about their actual business strategy and how we could communicate with the decision maker to help them solve that problem.
QUEST: It is a lot more complicated to enmesh yourself in somebody else's problems than sell them a box with widgets in it?
DELL: And it is a whole lot more profitable, too. Last quarter our earnings per share grew 89 percent.
QUEST: This is basically saying you make more money selling services than hardware?
DELL: Well, you know, that I would say that they kind of go together. And there are certain kinds of hardware, for example, in data storage and protection, you know, there is tremendous growth. Every 18 months the amount of data storage doubling and so we are very much in that business of helping customers do that. So these are complicated solutions that kind of transcend product services, solutions, as one offering.
QUEST: Is there a difference in selling the strategy for services and IT the provision of cloud computing and these new-is there a difference in strategy for doing that and running the company, as for traditional boxes and hardware, do you think?
DELL: Absolutely. You know, new skills are required, new capability, new culture. And you know, we have done that in a number of ways. Certainly adding talent to the business, our acquisitions have brought new DNA and new capability into the business. So of the more than 100,000 people we have at Dell, about 45,000 of them are in our services business. So we have really shifted the business from what it was five or 10 years ago.
QUEST: The acquisition side of it, those of us in my business, were-I mean, watched a 3PAR, for example, last year, bidding battle, with something approaching amazement to see how many hundreds of millions and billions could be added onto the price of a company. What happened there? It was like a firestorm?
DELL: Well, you know, we were asked if we wanted to bid on 3PAR. And basically, interesting asset, nice product, a bit on the high end, not really in the mainstream, and so we structured our bid in a way that gave us a fairly significant break up fee, if they other party decided they wanted to pay more. So in the end, the other party ended up paying $1.5 billion more than they would have. We got $72 million and we got the asset we really wanted, called Compellent. Thank you very much.
QUEST: The very press release that we received about today, talks about how you want to be a leader. You are taking the company to be a leader in these new services. How far have you still got to go to reach that potential, do you think?
DELL: We have made very, very nice progress and you see it in our earnings per share, growth last year, 51 percent for the full year. But enormous opportunity ahead of us, you know, we're at the very beginning of a new phase of growth for the next 25 years.
(END VIDEOTAPE)
QUEST: Michael Dell, chief executive and founder of Dell Computers, talking to me earlier. And tomorrow, you'll hear his views on China, the growth in emerging markets, and why he takes his children to China, to show them the potential.
Later on CNN, after QUEST MEANS BUSINESS, fame, fashion, and the royal wedding. It is all part of some entertaining discussion on "PIERS MORGAN TONIGHT". Sharon and Kelly Osbourne speak their minds, 30 minutes from now, after ourselves, "PIERS MORGAN TONIGHT".
(DESK BELL CHIMES)
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN. And on this network, the news always comes first.
As new clashes erupt in Syria, officials are moving toward abolishing the country's controversial state of emergency. Today, the Syrian cabinet approved a draft decree to throw out the 48-year-old law. The cabinet also approved a plan that would require citizens to obtain permits for demonstrations.
In Northern Nigeria, post-election violence -- accusations of vote rigging and roughly 17,000 displaced people. It all happened after election officials declared the incumbent president, Goodluck Jonathan, the winner. Today, the government deployed the military to areas where riots broke out and they've now imposed strict curfews.
The United Nations Children's Fund is sending an aid ship to the embattled Libyan city of Misrata. It's expected to arrived tomorrow, with drinking water and supplies, which will included recreational kits for children. The U.N. World Food Programme says other parts of Western Libya will receive aid soon, as well, thanks to a newly opened humanitarian corridor.
A sweetened bid in the battle to create the world's biggest exchange. NASDAQ and IntercontinentalExchange, better known as ICE, are boosting their offer to buy the New York Stock Exchange Euronext. They have topped a rival offer from Deutsche Boerse by $2 billion. Now, if the bid is successful, then the big board and UNX would be broken up.
Felicia Taylor joins us now live from the New York Stock Exchange.
Look, where -- where, from your gut feeling of talking to people, is the -- is the wisdom and clever money on this, with Deutsche who they -- who -- who the big board want or NASDAQ UNX?
FELICIA TAYLOR, CNN CORRESPONDENT: OK, so this is an emotional thing, pretty much, for any trader that's down here. I think they would prefer to go with Deutsche Boerse.
But let's face it, I mean, the NASDAQ ICE deal is -- is -- is a sweeter deal. And kind of the crux of this offer now is that they're including a $350 million fee that will be paid if anti-trust authorities block the offer. So that tells you that they're fairly confident that they're going to actually get past the authorities', you know, watchful eye. That was a key reason that the NYSE rejected the earlier bid.
So if I put money on it, I think I would -- I would put it with the NASDAQ ICE offer.
QUEST: Right.
TAYLOR: If I put emotions to it, I would go with Deutsche Boerse.
QUEST: OK. Does anybody see the irony in maybe the -- the sort of -- the paradox that the big board itself is actually in the midst of this brutal take over battle?
TAYLOR: Well, sure. I mean and here -- but he's, also, you've got to take a look at how they would play this out, OK?
So this time, the review process is going to begin and begin shortly. NASDAQ ICE has said it has already taken the actions necessary. The proposed merger of the Deutsche and the New York Stock Exchange would create the world's largest stock exchange. So that's very attractive to the New York Stock Exchange board.
QUEST: Right.
TAYLOR: And coming up on April 28th is the shareholder meeting. So that is going to be an appeal to them. If the rival bid splits the New York Stock Exchange into two companies, ICE takes the lucrative derivatives business and, of course, the NASDAQ will take its remaining businesses.
So that's not necessarily the most attractive thing...
QUEST: That will...
TAYLOR: -- because it takes away the idea that there is heavy competition in the marketplace, where there would be only just one large American stock exchange.
QUEST: Careful, Felicia, you mentioned emotion and it looks like you're getting emotional about this particular one.
We have to -- we will skate -- we will skate to thick ice of gold. Fifteen hundred on the nominal value.
TAYLOR: Yes, this is -- you know, look, I didn't think this was going to happen for a while. Most people were talking for it to come at the -- you know, maybe toward the end of the year. But, yes, indeed, we hit $1,500 an ounce. It actually closed at $1,495. But nevertheless, that's a very important psychological level.
And what it really indicates is that on the heels of yesterday's announcement from the S&P about a negative downgrade -- or, rather, two negative -- that there's still fear in the marketplace. The -- the rally hasn't really happened, I mean, off of yesterday's 140 point loss. The Dow was only up 55 points today. So there's still some nervousness, that VIX Index surge we saw yesterday. There's definitely some fear in the marketplace of -- of some unanswered questions. So that's why people are going to that safe haven of gold.
And let's face it, you know, earnings haven't done really that well, especially if you take a look at Goldman Sachs. At first glance, Goldman Sachs' shares...
QUEST: (INAUDIBLE)...
TAYLOR: -- were up about a -- 1.5 percent today. Now they're down 2.3 percent at $151.44. This is the big daddy of Wall Street. And everybody liked what they saw initially. But on second glance, take a look at this, Richard. Profit were down 21 percent. Market making revenue was down 30 percent...
QUEST: Hang on -- hang on...
TAYLOR: -- don't forget...
QUEST: -- hang on...
TAYLOR: -- (INAUDIBLE) -- out of $550 million...
QUEST: All right...
TAYLOR: Why?
What do you mean what, what?
QUEST: This is...
TAYLOR: What...
QUEST: This is...
TAYLOR: What was good?
QUEST: This is...
TAYLOR: They cut wages. They cut employees...
QUEST: This is what you call a kitchen sink answer.
TAYLOR: What?
QUEST: I ask about gold and I get a -- an execious (ph)...
TAYLOR: Yes, and I'm telling you...
QUEST: -- and gold (INAUDIBLE)...
TAYLOR: -- there's still fear in the marketplace.
QUEST: Felicia Taylor...
TAYLOR: I told you about gold already. There's fear in the marketplace.
QUEST: Oh...
TAYLOR: People are going to the safe havens. Please.
QUEST: Ali Bindari (ph), what have you done for me lately?
(LAUGHTER)
QUEST: Felicia Taylor.
Texas Instruments stock is in the red. The electronics giant is one of the first to predict how the disaster in Japan will impact its future results. Its profit outlook for the second quarter fell short of analysts' estimates. Texas has already lost $2 million in revenue in Q1.
Sony Ericsson is also feeling the effects of component shortages. The mobile phone maker is calling on its big parents, Sony and Ericsson to help with supply problems.
In addition to the human costs, businesses can expect to feel ongoing challenges from Japan's quake and tsunami. That's the view from the head of FM Global, one of the world's largest business and property insurers.
The chief executive, Shivan Subramaniam, joins me now live from New York.
Shivan, the lack -- I mean can we say this was the lack of preparation for an inevitability, an extreme event?
Or could -- or was this just simply one of those things that no one could have foreseen, in terms of the supply problems?
SHIVAN SUBRAMANIAM, CEO, FM GLOBAL: No, I think, you know, systematically what has occurred is that society has always underestimated the extent of the risk. And in this particular case, the Japanese environment and Japanese society developed all of their plans for the level of risk and then the event was significantly greater than the level of risk that occurred.
There is no country that is kind of -- that's as well prepared as the Japanese.
QUEST: Right. Right. So if that...
SUBRAMANIAM: A...
QUEST: -- if that is the case, then people, companies, CEOs, chairmans need to be looking very closely at their supply chain and their insurance requirements.
SUBRAMANIAM: Absolutely. There is, in my opinion, those companies that have prepared well for -- for a disaster, especially a natural disaster, are the ones who are now going to have a competitive advantage, and, depending on the question of product, most likely pricing power.
QUEST: If we look at the natural disasters -- look, you're in the business, Shivan -- let's not -- let's not mince matters about it. You are in the business of paying out in the events of natural disasters.
Now, we've had Australia. We've had -- we've had the earthquake in New Zealand. We've had Japan. We've had numerous fires and -- and tornadoes and hurricanes. And even in the U.S., just this very week, we are seeing death and destruction.
What's happening to the I need?
SUBRAMANIAM: Nothing. I think the I need has very, very strong balance sheets and what we will -- you know, we will manage our way through this process very, very comfortably and continue to provide coverage, you know, as we look ahead.
But in FM Global's case, our bigger issue really is to be very sure that we make sure our Fortune 1000 clients are not interrupted as much as - - you know, as much as everybody else. And they recover faster than everybody else. And the net result is we end up with less losses and our clients have less losses than anybody else.
QUEST: But -- but short of going into your clients' chief execs' offices and beating them over the head with a piece of wet fish, there's not a lot you can do. They are looking at temporary bottom line and they don't as yet -- maybe post-Japan, they will -- see the necessity.
SUBRAMANIAM: No, I think -- I think you underestimate a lot of them, is that a lot of them fully recognize the supply chain they -- they have. They put -- they put plans into place to have business continuity if -- if something does sort of disrupt those supply chains. They make very sure they have a balance sheet that can absorb some of those.
QUEST: Right.
SUBRAMANIAM: And most importantly, a lot of them try to have insurance as a last step to take care of any -- any business continuity issue they might have.
QUEST: Shivan, good to have you with us on the program, as always, giving us perspective on some really very significant and important events.
General Motors was so concerned about the quake's effects, it set up a war room to help pull the company through. We'll be talking to the chief exec of General Motors.
(COMMERCIAL BREAK)
QUEST: General Motors is one of the brands hoping to woo Asian customers at the Shanghai Auto Show this week. And like many automakers, G.M. Has faced turbulent times in the region following Japan's earthquake.
CNNMoney's Poppy Harlow has been speaking to the chief exec, Dan Akerson, in New York.
(BEGIN VIDEOTAPE)
POPPY HARLOW, CNN BUSINESS CORRESPONDENT: I want to talk first, Dan, about the impact of the earthquake and tsunami in Japan.
What has that been on your suppliers and just overall for GM?
DAN AKERSON, CEO, GENERAL MOTORS: Well, it's really thrown a monkey wrench into our supply chain, one that we've been able to overcome, quite candidly. We -- the first couple of weeks it was tough trying to assess how deep it went into our supply chain, our tier one, tier two and even tier three suppliers.
There were five wars -- war rooms, if you will, set up around the globe to focus on our 120 odd different plants globally to make sure that we had adequate parts for each individual model that we produced in a particular factory.
So you can imagine the complexity.
HARLOW: How big do you think the impact is going to be, when you look back at this year and sales as a whole?
AKERSON: So, you know, we sold 100,000 more cars in North America in the first quarter this year than we did last year. So we're progressing. We were doing well before.
Early indications this quarter is traffic through our showrooms is -- is good. It's not strong, but it's better than average, better than it was last year, which is a bit surprising.
So we've had no production interruptions. We don't think there will be. But I do think it's had a disproportionate impact on some of our Japanese competitors.
HARLOW: Now, you know, we're looking at near record high gas prices at a time when Americans just can't afford them. And GM sort of trying to get back on its feet. It really couldn't come at a worse time.
I'm wondering how you're coping with these oil and gas prices and I guess what you're preparing for?
AKERSON: You know, it's interesting, it's my first year in the job. Oil...
HARLOW: Quite a year.
AKERSON: Yes. It's been a challenge. But at the same time, I think the company has risen to the challenges pretty well.
What we're seeing -- and you saw volume drop off in our dealerships in '08. You're not seeing that right now. What you're seeing is the volume is actually staying pretty steady. But they're -- the mix, they're buying -- customers are buying smaller, more fuel-efficient cars.
HARLOW: So then the question becomes your margins are smaller on those cars than they are in your trucks and your SUVs.
So what does that mean for you guys, long-term?
AKERSON: Well, long-term, it says that we have to sell more cars if we want to keep the absolute profit number.
HARLOW: Right.
AKERSON: That's -- that's critical. And we have to make sure that we -- that we are making money in small cars, which is always a challenge for any OEM.
If -- if things don't get much worse, I think we're in -- that we're in pretty good shape.
HARLOW: What's much worse?
How do you gauge that, Dan...
AKERSON: Well...
HARLOW: -- as if the CEO?
Do you look at -- at gas prices?
Do you look at the overall economic recovery?
What's much worse?
AKERSON: Well, I think specific to our industry is gas prices. That's probably the biggest indicator.
HARLOW: Well, what's that level...
AKERSON: Well...
HARLOW: -- that freaks you out?
AKERSON: Well...
(LAUGHTER)
AKERSON: Well, I'd like to have $2 a gallon, but it's not going to be there. I think, quite frankly, it could get north of $4.00 or $4.50. I think up to $4.50 -- this is me talking -- we don't know. I don't think you know, I don't think anybody knows for sure. But I think, you know, if it gets to $4.50, you'll probably see people really stop visiting our showrooms.
(END VIDEO TAPE)
QUEST: Poppy Harlow talking to the chief executive of General Motors.
The company has big plans for China, where it hopes to double its sales there in just a few years, to 2015. The Chinese government is attempting to curb the country's appetite for foreign car brands. So GM's solution is to make a China only range with local car makers.
Eunice Yoon has been to look.
(BEGIN VIDEOTAPE)
EUNICE YOON, CNN CORRESPONDENT (voice-over): For the Shanghai Auto Show, General Motors is unveiling this car for China. It's not a Buick or a Chevy, but a whole new brand -- a Chinese brand called Baojun.
GM is the latest international car maker to create a Chinese brand. But it's unlikely to be the last.
(on camera): Did you come under any pressure from the government to rule out a Chinese brand?
KEVIN WALE, PRESIDENT, G.M. CHINA: We were working with our partners on developing that for more than four years now. Before these (INAUDIBLE) brands became, you know, so popular. So, no, we've been working on this for a long time and we wanted to do this regardless of what's going on in the marketplace.
YOON (voice-over): Many foreign automakers say the marketplace is changing in China.
(on camera): Despite government restrictions, the international car giants dominate the market here. Chinese people love to buy foreign- branded cars. But now, many of these companies are growing concerned about what they see as a shift in government attitudes.
(voice-over): Companies like Peugeot Citroen say a part of their negotiations to expand here, the Chinese government is instructing them to develop low cost cars with local labels.
PHILIPPS VARIN, CEO, PSA PEUGEOT CITROEN: There, actually, today, two critical matters for the Chinese government. One is to have a lot of brands. And we see more and more. That's the reason why we have decided to have a local brand in this joint venture with China.
YOON: Joint ventures with Chinese companies have always been a requirement for foreign car makers here. But some fear China's newest demand, to develop local brands, could undercut loyalty among Chinese consumers to foreign cars -- part of a worsening climate for international business here.
MICHAEL DUNNE, AUTHOR, "CHINESE ROAD, AMERICAN WHEELS": Once they buy those brands, they're going to be directly competing with the foreign brands. And over time, you could see them moving from foreign brands to this new brand. That's a danger for foreign auto companies.
YOON: But GM says it makes money either way.
WALE: At the end of the day, the Chinese consumer makes the decision on what they buy. They're not going to buy something they're told to buy. They're going to buy something they want.
YOON: And foreign car makers hope their models, no matter the brand, will be the big sellers here, in the world's largest auto market.
Eunice Yoon, CNN, Shanghai.
(END VIDEO TAPE)
QUEST: When we come back in a moment, turning uncharted territory into another challenge for our chief executives in London and in Asia, as they show us how to hold their nerve.
After the break, The Boss.
(COMMERCIAL BREAK)
QUEST: The Rolling Stones tell us you can't always get what you want and that is unless you're the chief executive.
Now, we've been shadowing three of our chief execs for The Boss. Their habit of seeing off obstacles has made them multi-millionaires.
Tonight, Sarah Curran in London and her colleague or her fellow boss, Michael Wu, in Asia, shows why failure is not an option when you are the boss.
(BEGIN VIDEOTAPE)
UNIDENTIFIED MALE: (voice-over): Previously on The Boss, taking on mainland China. After years of planning, Michael Wu crosses the border to Shenzhen.
MICHAEL WU, CHAIRMAN AND M.D. HK MAXIM'S GROUP: China is such a big market that we know that we cannot conquer this huge country all at once.
UNIDENTIFIED MALE: And in London, sacrifice and success -- as Sarah Curran unveils a redesigned my-wardrobe.com.
SARAH CURRAN, CEO, MY-WARDROBE.COM: It feels amazing. I'm just so proud.
UNIDENTIFIED MALE: The launch party is over, the redesigned Web site is up and running.
Now, it's back to business, back to the office and back to a dilemma every boss has to face -- how to find cover for a pregnant staff member.
CURRAN: My first ever employee, Jo (ph), who is the woman's wear buyer, is pregnant. And it's the first "my baby." So, well, actually, and strangely enough, in five years, it's the first time we've actually had to kind of look at what our maternity policy is going to be.
So could you come and do it at my desk?
UNIDENTIFIED FEMALE: Now?
CURRAN: Yes.
UNIDENTIFIED MALE: With Jo set to go on maternity leave, Sarah needs to recruit a new team member.
CURRAN: Lauren, I've been meaning to say, you know...
UNIDENTIFIED MALE: For her, it's about finding the right person to fit in. And that goes well beyond a strong application and an impressive interview.
CURRAN: I've had examples where, in fact, gut instinct told me I shouldn't have gone ahead with the -- with the appointment, and sure enough, it didn't work out. And a lot of it is down to the culture of it and having that real drive and that real passion and that real -- the -- the ability to roll at the seas (ph), at whatever level, to get involved and to do what sometimes you have to do to get this business, to help grow the business.
UNIDENTIFIED MALE: Even if it's just to cover a few months maternity leave, Sarah likes to surround herself with experts.
CURRAN: It's impossible for one CEO to be an expert in marketing, buying, finance, P.R., styling, editorial. It's impossible to find all those ingredients in one person. So you have to, therefore, have -- bring the experts into those departments.
UNIDENTIFIED MALE: Sarah isn't shy to acknowledge her weakness. In fact, she'll be the first to admit she doesn't know it all.
CURRAN: Sometimes you feel threatened by bringing on people that are more experienced than you because it's sort of an ego thing. And, actually, it's completely the wrong thing to do. You know, you can't be driven by that. You have to welcome experts in their field, because, actually, that's the only way that you are also going to grow and learn.
UNIDENTIFIED MALE: That's a vision also shared by Michael Wu, who's pushing ahead with his expansion in mainland China.
(SPEAKING IN CHINESE)
UNIDENTIFIED MALE: Today, he's testing this booming market with a new Genki Sushi restaurant in Shenzhen.
WU: This is new for all of us. I think that our strategy is particularly, in opening a concept like sushi, which is very new in China, you know, this really is a trial and error for us. And we have to build our customers.
UNIDENTIFIED MALE: OK. Hands off, OK?
UNIDENTIFIED MALE: OK.
UNIDENTIFIED MALE: Well, let's try the food here today.
UNIDENTIFIED MALE: Selling the Southern Chinese on sushi has not been easy.
UNIDENTIFIED FEMALE: We have like noodles, like udon or these things like on the menu.
WU: Yes. So they're more popular than...
UNIDENTIFIED FEMALE: Yes. So you can see...
WU: (INAUDIBLE) more popular with (INAUDIBLE)?
UNIDENTIFIED FEMALE: Yes, definitely.
(SPEAKING IN CHINESE)
UNIDENTIFIED MALE: Long-term, Michael is looking to change their views on sushi. For the time being, however, he's adapting the menu.
WU: So this is a fried dumpling here.
UNIDENTIFIED FEMALE: Yes.
WU: And I'll try this.
UNIDENTIFIED FEMALE: Yes.
WU: And we've already added many new food items which are not on our menus in Hong Kong and some of which I'm going to try today.
We have fried udon, which we don't have. We have gyoza, which is dumplings, which we don't have in Hong Kong.
UNIDENTIFIED MALE: Michael knows his Genki Sushi brand won't grow at the same pace as some of his other restaurants. But that doesn't worry him. Right now, he knows he must first understand his customers. With time, how can educate them.
WU: I think the -- the -- the biggest mistake we -- we can make is to think that we know about the Chinese consumer, what they want.
UNIDENTIFIED MALE: This year alone, Michael plans to open six Genki Sushi stores.
WU: We will open slowly. We're not going to rush to build this brand. Over time -- and I'm talking about five, 10 years -- I think sushi will become a very popular food item in China, particularly in Guangdong. And it will appeal to a much larger part of the population than it does today.
UNIDENTIFIED MALE: Next week on The Boss, a one-on-one with Sarah Curran.
QUEST: You haven't got the Porsche, you haven't got the diamond bling.
CURRAN: Oh, I have got a -- I have got a Porsche.
(LAUGHTER)
UNIDENTIFIED MALE: She's rebranded and relaunched, but can the chief executive of my-wardrobe.com keep her company in the fast lane?
(END VIDEO TAPE)
QUEST: The Boss.
And if you have got anybody that you would like to perhaps consider to join us as one of our bosses, well, you can tweet me @richardquest. You can also just follow the program, have a discussion, have a debate, have a bit of fun and a bit of jollity on the way. @richardquest is the Twitter name where we can follow each other. Quest@CNN.com is our e-mail address, too.
That is QUEST MEANS BUSINESS for tonight.
I'm Richard Quest in London.
As always, whatever you're up to in the hours ahead, I do hope it's profitable.
"PIERS MORGAN TONIGHT" is after the headlines, after the break.
END
