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Quest Means Business
Wall Street Watching Apple; Toshiba CEO Quits Over $1.2 Billion Accounting Scandal; Corporate Transparency; Apple to Release Results; Apple Stock Makes Ordinary Investors Rich; Microsoft, Yahoo! Reveal Results; Earnings Drag Down US Stocks; Nigeria's Economy Hit By Low Oil Prices; Nigeria's Broken Oil Economy
Aired July 21, 2015 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[16:00:00] (NEW YORK STOCK EXCHANGE CLOSING BELL)
MAGGIE LAKE, HOST: A triple-digit down day on Wall Street. It's Tuesday, the 21st of July.
Tonight, the verdict is in: Apple's latest results are due out this hour.
Bowing to the pressure. Toshiba's chief executive quits over a giant accounting scandal.
And fiery protests return to Calais, and the CEO of Eurostar tells me it's not hurting his company.
I'm Maggie Lake. This is QUEST MEANS BUSINESS.
Good evening. In the coming hour, a crucial report card for the world's most valuable company. Apple has exceeded analysts' expectations
for eight quarters in a row, and there are three crucial areas that will determine whether the company can beat forecasts once more.
First, sales of Apple's moneymaker, the iPhone, ahead of a new model expected later this year, Apple's second-biggest market, China, after
months of wild stock swings, and clues about the success of the Apple Watch, now on sale for three months. We will bring you those numbers as
soon as they are released, and we will be keeping an eye on Microsoft and Yahoo! also. Both due to report this hour.
First we go to Tokyo for our other top story tonight, where one of Japan's biggest tech companies is in turmoil. Toshiba's CEO, along with
eight board members, have resigned from their post. They took the blame for a massive accounting scandal involving overstated profits of $1.2
billion.
An independent committee found Toshiba had been fiddling with the figures all the way back to 2008. CNN's Asia-Pacific editor, Andrew
Stevens, put the scandal into context from Hong Kong.
(BEGIN VIDEOTAPE)
ANDREW STEVENS, CNN ASIA-PACIFIC EDITOR: It is one of Japan's oldest and most established corporations, a household name not only in its home
country, but around the world. And now, Toshiba is at the center of a scandal in which executives are accused of systematically lying about the
company's profits, and they'd lied, apparently, for the past seven years.
Three current and previous CEOs have now quit, plus another six senior executives. Billions of dollars have been wiped off the share price, and
the reputation of Toshiba has been blasted.
The scandal first surfaced in May of this year when Toshiba itself announced that it had brought a former Tokyo prosecutor in to investigate
irregularities in its earnings statement. Investors took fright. The stock plunged, down 24 percent at its lowest point last week.
Now, there has been something of a rebound since then, but that's little comfort against the damage to the 140-year-old company's reputation.
And also the expose of what investigators say was a corporate culture where underlings were too scared to question their bosses.
Now, the prosecutors found -- take a look at this -- there existed a corporate culture at Toshiba where it was impossible to go against the
boss's will. It also said employees were pressured into postponing loss reports or moving some costs into later years.
Toshiba inflated the earnings by $1.2 billion over seven years between 2008 and 2014 to hit aggressive targets which had been set by top
management. That's according to the investigation.
Now, the report does not say why they did that. The business conditions for many Japanese companies over that period were certainly
tough. The 2008 global financial crisis to begin with, followed in 2011 by the devastating tsunami, which spawned, of course, the Fukushima nuclear
crisis. Toshiba built nuclear reactors.
Toshiba's outgoing CEO apologized to the press conference on Tuesday.
HISAO TANAKA, OUTGOING PRESIDENT AND CEO, TOSHIBA: We are taking what has happened very seriously, and we would like to apologize from our
hearts, too, starting with the shareholders, and to all the stakeholders.
STEVENS: The prosecutor's report said Toshiba should have been a model for other companies, but coming just two years after the $1.7 billion
accounting scandal at another Japanese giant, Olympus, it's a model for all the wrong reasons.
Andrew Stevens, CNN, Hong Kong.
(END VIDEOTAPE)
LAKE: Toshiba is not the first major Japanese company to face a scandal over its accounts. In 2012, the former chairman of Olympus was
arrested over accounting fraud, along with several other executives. He later admitted he had lied to regulators.
The problem isn't limited to Japan, either. That same year, HP took a nearly $9 billion writedown on Autonomy and alleged the acquisition had
misrepresented its finances. And last year, the Tesco CEO stepped down after the company admitted overstating its profit forecast by $400 million.
[16:05:02] In Japan, the country's finance minister says investors could lose market trust if better corporate governance isn't put in place.
Toshiba's shares are down, as Andrew mentioned, around 20 percent so far this year. On Tuesday, they actually managed to push more than 6 percent
higher. Investors, apparently, were glad the report wasn't worse.
A recent study from Transparency International showed tech companies are among the worst when it comes to handling corporate reports. Ben Elers
is the programs director for Transparency International, and he joins me now, live from Berlin. Ben, thank you so much for being with us. What do
you make of this Toshiba revelations, and how worried should investors be?
BEN ELERS, PROGRAMS DIRECTOR, TRANSPARENCY INTERNATIONAL: Well, this is just simply old-fashioned cooking the books, but on a massive scale. In
so many scandals that we see, there are attempts to blame rogue employees or a bad apple, but on this case, it was clearly systemic and went right to
the top of the company.
And with eight senior executives having gone, this is huge. And corporate Japan and Japan should be very worried indeed.
When we undertook our study in 2012 of transparency in corporate reporting, we looked at 124 of the largest publicly-traded companies in the
world, five of which came from Japan, not Toshiba. And only one of those, I think it was Toyota, even had a basic public statement, anti-corruption
commitment.
And this really is 101 in fighting corruption, just being clear about this. No Japanese company explicitly prohibited facilitation payments.
There was no information whatsoever on reporting of financial information on a country-by-country basis. And Honda actually came 123rd out of 124
companies in terms of their corporate transparency in reporting --
LAKE: Yes --
ELERS: -- and basically, only Chinese companies came worse.
LAKE: But I want to ask you about this issue of this being so pervasive throughout the corporate culture. In that report, as Andrew
pointed out, they said that there was this idea that employees felt that they couldn't possibly even push back against their managers' wishes.
This seems like something that is deeply embedded, or that there is a culture that sort of lends itself to this type of thing if you feel you
can't question a boss.
ELERS: Look, all companies depend on the loyalty of their employees, that's a good thing. But it's not really loyalty to the company when
integrity is at stake and you can potentially bring a whole company down. And there's -- what? -- 200,000 employees and their families who are
probably not very proud to be working for Toshiba tonight.
So, this is huge. And this obsession with loyalty and not questioning things, we see the results. It gets companies into massive trouble. And
Japan and the company and the stakeholders, shareholders, everyone suffers.
LAKE: That's right. Ben, where were the regulators? Where are the auditors? These are publicly-traded companies? How was this able to go on
for so long before any red flags came up to anyone?
ELERS: Well, this is the big question, isn't it? It's what is the role of the auditors here? And hopefully there will be a thorough
investigation here, and it won't just stop with the resignation of eight senior executives, and that's it.
But there can't be impunity for this kind of act and this kind of scandal on such a large scale. So hopefully there'll be an investigation,
which will really get to the bottom of this. Because it's certainly hurting Japan.
Investors depend on the numbers. They need to trust the numbers which they're given. And when they can't, ratings agencies will downgrade
companies, and the fallout can be massive. Look at Brazil with the scandals around Petrobras, where the stock has just died, bonds are down,
and brand Brazil has been severely compromised. And it's going to happen to Japan as well.
LAKE: All right. Very interesting development in this story, we certainly haven't heard the end of. Ben Elers from Transparency
International. Thank you so much, Ben.
Now, Apple's newest product, the Apple Watch, is far from its biggest money-maker. A top Apple analyst will tell us what he's watching for in
the company's results.
[16:09:43] (COMMERCIAL BREAK)
LAKE: In just a few minutes, Apple is expected to release its report card for the past three months. It will be the first set of results to
include the sales of the Apple Watch.
But the watch is far from the biggest slice of Apple's business. Until 2007, the company was formerly known as Apple Computer. Today, just
one-tenth of company's revenue comes from computer sales. The iPad is just behind at 9 percent. Services bring in another 9 percent, that includes
revenue from the iTunes store, the apps store, along with licensing and extended warranties.
The "other" category, with 3 percent, includes the iPod, Apple TV, Beats, and Apple accessories. Starting this quarter, "other" will also
include Apple Watch sales.
The final and, as you can imagine, the biggest slice of the iPhone. With a new iPhone expected later this year, investors will be watching to
see if demand holds up.
No one's watching closer than Gene Munster. He is one of the industry's best-known Apple analysts. He's managing director at Piper
Jaffray, and he joins me now live. Gene, great to see you. So, tell me, what are you expecting? Is Apple going to ride to the rescue? We've seen
the market having a little bit of a hard time, and we know how closely everyone watches for Apple.
GENE MUNSTER, MANAGING DIRECTOR, PIPER JAFFRAY: Well, we'll find out in 15 minutes. My bet is that they will come through. And I think that
the unit numbers, the 49 million unit iPhone, if there's one number to focus on, that's a critical number, and I think that they're going to
deliver on that, which is going to really speak to the strength of how they're gaining share with the iPhone. And so, I think they're going to
come through tonight.
LAKE: I'm going to ask you about the "other" in a second, but it is important to talk about that. Gene, there was a time when you and I were
talking, and it was all about Samsung really catching up with Apple, that maybe Apple had lost its cool, and people were not gravitating to those
very expensive iPhones. We don't seem to be having that conversation that much anymore.
MUNSTER: We don't, and the reason is that they're gaining share back at the high end of the smartphone market. The low end is going to other
very low-cost providers, but at the high end, the Samsung that we've talked about in the past, Apple is gaining share and growing significantly faster.
And so, I think what's happened is just this slow evolution of the iPhone, and it's just started to creep up, and now it's starting to impact
the overall global market share. Keep in mind, one other quick point is that it's still small. Apple's overall market share globally is about 15
percent of the smartphone market, so there's room for it to grow.
LAKE: There is. And a lot of people talk about the fact that it's hard when you look at it, because they kind of are an integrated system.
You're not talking about all these various makers who are on the Android platform. Is that ecosystem helping? And how much should we pay attention
to the importance of Apple Watch as a part of that?
MUNSTER: Well, the ecosystem's definitely working, and we think of the analogy of they're just slowly turning the screw down on their
competitors. And the reason is that the ability for something to work really seamless for people who are non-technical is important, and that's
where they're gaining some of their share.
As far as the watch and the impact, it's going to take time. And some investors are disappointed by the uptake, it's just a few million units, a
few percentage of revenue, as you talked about.
But we think if you fast forward a couple years from now when there's better apps, it's going to be a much bigger story. And that tight network
or that tight connection, that ecosystem with their other Apple devices should play into the watch's favor.
LAKE: Yes. I have to tell you, Gene, I have, when we talk about it with the viewers all the time, everyone asks me about it. And everyone
tells me they're thinking about buying one, they're just holding off. So, anecdotally for me, it seems to be right that there's interest. Maybe
people just haven't pulled the trigger.
Gene, what about the stock price though? It's been trading near all- time highs again. What should we expect from this? Is all the good news priced in already, or are people still kind of underestimating the power of
Apple?
[16:15:06] MUNSTER: Well, we talked to investors, and one of the big themes over the last nine months has been this slowdown in their revenue
growth, because this last four quarters have been so strong with the new form factors, that creates a tough comparison or a tough comp.
And so, I think this setup is really good to own the stock, and the reason is that investors have factored in the negative part about these
tough comps and the slowing growth, but haven't factored in the positive about them gaining shares. And the other, slow increase in profitability
next year.
And so, the net of this is I think that we have $162 stock price target. The stock's at $132. We think it's a good one to own.
LAKE: All right, there you go, it's a bullish call. Gene, I know you're going to be very busy in the next couple of hours. We appreciate
you catching up with us. Gene Munster for us.
MUNSTER: Thank you.
LAKE: Now, Apple stock hit Wall Street 35 years ago in December of 1980, if you can believe it. It didn't truly take off, though, until the
iPod and Mac boom in the mid-2000s. Ordinary investors who bought in early and held on are now sitting on a goldmine. Our Samuel Burke met a couple
that invested $17,000 in 1998. Today, they say they're millionaires.
(BEGIN VIDEOTAPE)
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT (voice-over): They say buy low, but if you were buying Apple stock in 1998, you were buying really
low, under $1 a share in today's terms.
BURKE (on camera): When you first invested in Apple, how much money was your initial investment?
NING WANG, EARLY APPLE INVESTOR: We stated in 1998, $17,600. That's how we started. We didn't spend much on it. They were cheap.
BURKE: This was before the iPhone, even before the iPod. That was actually a low point for the Apple company. What made you so excited about
Apple?
TING QIAN, EARLY APPLE INVESTOR: I think it's 1998, 1999, I went to the Mac Award Conference, and I saw Steve Jobs talking. And the whole
thing triggered it. It's not just about the product. And they kind of sparked an interest in their business.
BURKE (voice-over): Ning Wang and his wife, Ting Qian, didn't stop buying Apple stock in 1998. They say they've invested tens of thousands in
the company over the years, an investment in a stock that's up over 13,000 percent since they first bought.
BURKE (on camera): Just recently, you finally hit a million dollars in your total investment. What was that moment like?
WANG: She's more excited about that we are participating, not the money.
QIAN: Yes, not the money part.
BURKE (voice-over): Ning and Ting have sold some of their stock to buy things like a vacation home, but they say they're always held on to
most of it.
BURKE (on camera): When you guys have sold stock, was it because you didn't have confidence in the products or the business?
WANG: Never. Always discipline. Discipline. The market goes up and down. You can not catch it.
BURKE: Now, Apple Watch has come out. A lot of analysts have said they don't think Apple Watch sales have been nearly as high as expected.
So, is this a time for you to stop and assess and decide whether you want to cash in on some of the stock? What are you guys going to do?
QIAN: In any new first generation comes out, maybe there's a waiting time.
(CROSSTALK)
BURKE: Maybe there's room for improvement.
QIAN: Yes, of course.
BURKE (voice-over): So, what does the couple think about the stock today?
QIAN: I think it's time to buy.
BURKE (on camera): Time to buy?
QIAN: Yes.
WANG: More? More?
(LAUGHTER)
BURKE: That's news to him.
(END VIDEOTAPE)
LAKE: OK, we see who the lead investor is in that couple. Well now, new into CNN, we want to bring you right up to date, Microsoft and Yahoo!
have revealed their results for the quarter.
Microsoft says it was the Cloud and hardware that drove its record revenues. Yahoo! says its 15 percent year-over-year growth is the best in
nearly a decade. That was driven mostly by mobile video and display ads. CNN Money's Paul La Monica is here with us now to break it down, maybe keep
it real.
All right, so is this -- let's start with Microsoft -- good news, or is this spin? Both of them are, of course, saying this is fantastic, but
what do you think first blush? Because they are just coming out, these minutes.
PAUL LA MONICA, CNN MONEY DIGITAL CORRESPONDENT: Yes, they're just coming out. The very quick reaction, it looks like Microsoft and Yahoo!
stocks are both down on this news. I think -- it was a negative day overall, so I think investors may still be conditioned to look for bad news
after IBM.
Microsoft, we all knew that their hardware business was hopefully going to get a bit of a boost. The Windows 10 side of things, on the
software side, you've got a refresh there. Xbox is still a strong performer for them. But mobile, they took that huge writedown from the
LAKE: Yes.
LA MONICA: -- Nokia business they acquired, that's something I think investors are still concerned about.
With Yahoo!, even though they're touting that strong growth on earnings and the success that they're finally having with mobile and
display ads, earnings did miss forecasts. Investors seem to be spooked by that. But also, Yahoo!, let's be honest, it's really just, as I like to
call it, Alibaba West.
LAKE: Yes.
LA MONICA: People are waiting for Marissa Mayer and more details from her about the spin-off of the remaining Alibaba shares, and that's what
people want to hear about, not the core results, I think.
[16:20:01] LAKE: There -- and these are both companies that are in transition, right? They're trying to sort of reinvent themselves from what
they were in the past to something new.
I want to talk about Microsoft for just a moment. That stock has really been lagging. If you want to take a punt on something, Satya
Nadella trying to get some of the bad news out with that phone part of the business earlier before the earnings call and try to keep everybody's focus
on that Cloud business.
It looks like if investors aren't thrilled at first, we're going to hear the conference call as well. Is it that the transition's not
happening fast enough, or people just don't know if they can replace that cash cow that was Windows?
LA MONICA: Exactly. Don't get me wrong, Windows still is a cash cow, Office to a certain extent as well. But Nadella definitely focusing on the
Cloud. I think that he realized that the Nokia acquisition, that was not his call, that was done under Steve Ballmer.
So he's trying to get maybe the classic sort of kitchen sink, let's really take this huge writedown, we'll do more layoffs, which is
unfortunate, because Microsoft has cut a lot of jobs under Nadella. I think he's hoping that can maybe kick start this transition and get people
focused on the more exciting Cloud business yet again.
To be fair, Nadella -- the stock has done well overall since he took over. Last year, it did extremely well. People were very excited,
probably because he just wasn't Steve Ballmer.
LAKE: Yes.
(LAUGHTER)
LA MONICA: But now, the honeymoon seems to be over, and it's definitely the same case with Marissa Mayer.
LAKE: I was going to say. And we know that the honeymoon has sort of been ending for her --
LA MONICA: Been over for a while.
LAKE: -- as well. Paul, I want to ask you, we saw a pretty big drop in the Dow today. There was a lot of hope pinned on these tech companies,
could they kind of revive that momentum. What's going on with the broader market? What's holding the broader market back?
LA MONICA: Yes, the broader market today, I mean, I don't want to get too worried about the Dow. I think what happened with the Dow is more the
folly of price weighting.
LAKE: Yes.
LA MONICA: Because you had IBM and United Technologies, two companies with triple-digit stock prices, their earnings stunk.
LAKE: Yes.
LA MONICA: And that's why the Dow went down. Verizon also didn't have great numbers, it's a Dow component. But the big drop in the Dow
really was about what happened at IBM and also United Technologies, which despite having "Technologies" in its name, isn't really --
(LAUGHTER)
LAKE: Yes, that's right.
LA MONICA: -- a technology company. Jet engines, elevators, and air conditioners.
LAKE: Yes, and there's some headwinds on that. Energy, also, which I know people are worried about the energy sector, too, so that's a drag.
We'll have to see if some of these big tech companies, which are also blue chips --
LA MONICA: Right.
LAKE: -- can help swing things.
LA MONICA: Google had another all-time high.
LAKE: Right.
LA MONICA: -- the earnings --
LAKE: We're waiting for Apple, so we'll see.
LA MONICA: And Facebook next week, too. That's another all-time high today.
LAKE: There could be hope. There could be hope. We'll hang onto that. Paul, thanks so much for breaking it down for us --
LA MONICA: Thank you.
LAKE: -- those early numbers. And again, those conference calls will be happening. We'll keep an eye on them for you.
Now, after the break, Nigeria stands on the brink of economic crisis. We find out how the country's new president plans to turn that tide.
(COMMERCIAL BREAK)
LAKE: Once held up as one of the up and coming mint economies, Nigeria has seen a reversal of its economic fortunes in recent years. The
government relies on oil for about 80 percent of its revenue, so low crude prices have weighed heavily on the economy.
Earlier, CNN's Christiane Amanpour spoke exclusively to Nigeria's new president, Muhammadu Buhari. She asked him how he plans to tackle this
brewing economic crisis.
(BEGIN VIDEOTAPE)
MUHAMMADU BUHARI, PRESIDENT OF NIGERIA: My people, firstly, I believe, they want the security in their country to be stabilized, so that
a normal life, mostly in the southern part of the country, where the militants are still sabotaging oil installations and kidnapping people and
demanding ransom.
[16:25:13] And also into the country, where Boko Haram is still active. This is the main preoccupation of Nigeria now, and the real issue
we're looking to solve. Nothing will work until the country is secure.
CHRISTIANE AMANPOUR, CNN CHIEF INTERNATIONAL CORRESPONDENT: What about your campaign promise to root out corruption? If they turned out
that some of the guilty ones were members of your own party or your own associates, would you crack down on them, too?
BUHARI: Yes, I have to. There isn't going to be any party member or any personality that can escape justice.
AMANPOUR: Mr. President, are you disappointed that President Obama is yet again not going to Nigeria, the biggest and most economically powerful
country in Africa?
BUHARI: I wouldn't say I was disappointed, but how I wished he will change his mind and go to Nigeria.
AMANPOUR: Did you ask him? Did he say he would?
BUHARI: Well, I ask him -- I will send a formal invitation.
(END VIDEOTAPE)
LAKE: With low oil prices causing government revenues to dry up, ordinary citizens are beginning to feel the effects. Civil servants in 23
Nigerian states have gone unpaid for months. CNN's Christian Purefoy looks at how the people of Nigeria are coping with the crisis.
(BEGIN VIDEOTAPE)
CHRISTIAN PUREFOY, CNN INTERNATIONAL CORRESPONDENT (voice-over): A small roadside mechanic outside of Lagos. Most people just drive on by.
Inside is a mechanic who knows how to fix oil leaks in broken engines. But the problem is, there's one engine Obinna can't fix: Nigeria's broken oil
economy.
EDWIN OBINNA, MECHANIC: When there's no oil in the vehicle, the engine can't work, because you need oil to protect its moving, very soft,
easily to move. When there's no oil it won't work, iron to iron.
PUREFOY (on camera): Like Nigeria.
OBINNA: Like Nigeria. Our currency is different than other places because everywhere is very hot.
PUREFOY (voice-over): Nigeria is Africa's largest oil producer, but as the price of oil has crashed, so, too, has Nigeria's economy.
The naira has fallen to record lows. International investment has stalled, and there are persistent fuel shortages across the country.
PUREFOY (on camera): Obinna's mechanic store sits beside what is probably one of the most important roads in the whole of Nigeria. It links
the mega city and port of Lagos to the rest of the country.
Now, the federal government had promised to rehabilitate and expand this road. But as you can see from the potholes behind me, work has
stalled. And that is simply because there's no money left to finish the job.
PUREFOY (voice-over): And energy analysts say there is no clear plan to fix the problem.
DOLAPO ONI, ENERGY ANALYST: There needs to be communication about the economic policy of the government, which is a case of saying this is how we
want to drive the economy going forward. This is how we want to open the economy.
That sort of communication will give investors an idea of, OK, this is what you want to do, and this is how we fit it into your plan. And then we
can start to see some forex influence back into Nigeria.
PUREFOY (on camera): Does that communication exist right now?
ONI: At the moment, no, it doesn't.
PUREFOY (voice-over): And now the problems are affecting Obinna's business.
OBINNA: Today, I'm hungry for my family, we have nothing to eat. For groceries, I can have something to do. I need money, I get it when I work.
PUREFOY: Obinna manages to start up his engine to get the truck back on the road. He hopes Nigeria's leaders will do the same with the economy
soon.
Christian Purefoy, CNN, Lagos, Nigeria.
(END VIDEOTAPE)
LAKE: It is the moment Wall Street is waiting for: Apple's highly- anticipated results, due to be released in just a few moments.
[16:29:12] (COMMERCIAL BREAK)
LAKE: Hello, I'm Maggie Lake. Coming up on the next half hour of "Quest Means Business," the results are in, Apple third-quarter reports are
due out any minute.
And the CEO of Eurostar tells me that a fresh wave of protests is bad news. First though, these are the top world headlines we're following for
you this hour.
Funerals have taken place for the victims of Monday's bombing in Southern Turkey. Turkey's prime minister says one of the suspects has been
identified and that a connection to ISIS appears likely. At least 31 people were killed when an explosion tore through a rally in the town of
Suruc.
Three Spanish journalists have gone missing in Syria. The president of the Spanish Federation of Journalists says the three men were last seen
nine days ago when they were working in the Aleppo region.
Two British men are being held by U.K. police on terror charges. Authorities say the pair from the town of Wootton, north of London,
intended to join ISIS in Syria. As our Fred Pleitgen tells us, one of the men is also being charged with planning to attack U.S. troops on British
soil.
(BEGIN VIDEOCLIP)
FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: One of the charges against both of them was that they were plotting to go to Syria and
to join ISIS there. And then one of the men, Junead Kahn, he apparently was plotting to kill American service members here in Britain, and they did
offer some more details as to what they thought this plot entailed.
And apparently they were talking about a hit-and-run car style attack, or an accident style attack as they called it, where apparently he was
planning to run into a U.S. service member and then kill a service member with a knife. Allegedly there was also talk of using a suicide vest as
well.
(END VIDEOCLIP)
LAKE: Pope Francis has called on the United Nations to take action on human trafficking. The Pope invited 65 mayors and local politicians from
around the world to a conference aimed at fighting modern-day slavery and climate change. The Pope said decisive action was needed.
(BEGIN VIDEOCLIP)
POPE FRANCIS, ROMAN CATHOLIC CHURCH, VIA INTERPRETER: The United Nations really needs to take a very strong position on this issue,
particularly the trafficking of human beings that are caused by this environmental situation and the exploitation of people.
(END VIDEOCLIP)
LAKE: Donald Trump's presidential run continues to grab headlines. At a speech in South Carolina, the Republican candidate read out the
private cell phone number of his fellow candidate Senator Lindsey Graham urging supporters to call.
Senator Graham later tweeted that he was quote, "probably getting a new phone."
Major disruptions at the gateway between Britain and mainland Europe. This was the scene in the French port of Calais. Disgruntled ferry workers
set tires alight on the busy highway, blocking access to the Channel tunnel terminal more than - for more than - two hours.
It is just the latest in a series of protests which have plagued Eurotunnel travelers this summer. It seems the disruptions at Calais have
done little to derail Eurotunnel's biggest customer Eurostar. The train network operator which links cities like London, Paris and Brussels just
reported record passenger traffic -- more than 2.8 million customers between April and June.
[16:35:03] To help it cope with demand, Eurostar is introducing its first new fleet of trains in two decades. They will enter service at the
end of the year.
Earlier I caught up with the firm's CEO and asked him how much the recent protests were affecting his bottom line.
(BEGIN VIDEOCLIP)
NICOLAS PETROVIC, CEO, EUROSTAR: We suffer from the closures of the tunnel in June especially because of protestors on the line and for us it's
not very good news. It's several millions of pounds off the bottom line. First of all there's a loss of revenue because not everyone can travel but
also we have to compensate passengers, you know, who have to go to hotels and they've missed their train.
So for us it's really bad news and I really hope the situation will get resolved soon.
LAKE: If we look beyond the protests, just at the underlying fundamentals, what are you seeing in terms of where we are with the economy
and with consumers' willingness to spend?
PETROVIC: Q2 for us was a record quarter and this is because especially the U.K. economy is now - there's a lot of confidence in the
leisure market and the stirring (ph) is strong so people are, you know, they're happy to have city breaks and to spend money.
The French economy actually is also OK abzsory (ph) because the reports are not that good but we don't see that in our numbers. But really
what's interesting is to see the business market both in Paris and London is extremely strong. I mean, we're coming back to the levels of 2007 or
2006, so that's pretty - that's pretty good news for us.
LAKE: It certainly is. Do you think that that kind of momentum is sustainable?
PETROVIC: Well, these days it's very difficult because literally each quarter is different and so the summer looks very good at the moment.
Obviously it's mostly leisure markets because many, many Americans also coming now to Europe because the euro is weaker than it used to be. So
we've got quite a few American tourists onboard which is great.
Then September/October we'll have to wait and see to and hopefully the business markets will be there to - for the comeback after the summer.
LAKE: One of the uncertainties for the business market or the headwinds is really the political wrangling we've seen in Europe. There
was so much drama surrounding Greece and a lot of people are concerned about what that might mean for Britain as it considers whether it wants to
stay part of the European Union.
How concerned are you about that?
PETROVIC: The Greek - the Greek debate - didn't affect business at all. We could see, and I speak to a lot of businesses, of course our
customers - and they were very relaxed actually about Greece.
Now the U.K., that's a different story and we're still unsure about when, you know, the vote will take place - the referendum, but that will
bring uncertainty and as the campaign hits up, it won't be very good I think for business because there was always a tendency for businesses to, I
would say, to wait and see when there is a big election.
So that's the big uncertainty for next year and the year after, so that's what we need to watch closely.
(END VIDEOCLIP)
LAKE: As promised, Apple has just released its latest earnings and shares are sinking in after-hours trade. We're crunching the numbers and
we'll have a lot more after the break.
(COMMERCIAL BREAK)
[16:40:49] LAKE: Apple's highly-anticipated results are in and shares are down more than 7 percent in after-hours trade. As a result the company
reported $49.6 billion in revenue. That's more than $10 billion higher than a year ago. That was driven by record iPhone and Mac sales.
CEO Tim Cook also held a successful release for the Apple Watch. Joining me now to discuss, our own Samuel Burke and Shelly Palmer, the host
of "Shelly Palmer Digital Living." Thank you both for being with us.
Sam, I just want to start with you because of these numbers did just come across. What are - I mean - you're talking about massive revenue,
massive profit every year, but what don't - what is it that investors don't like about (inaudible)?
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: The one number here that investors are not going to like is the amount of iPhones sold was just 47.5
million. If that sounds like a massive amount, well you're correct but they actually had expectations of between 48 and even a lot of people
expecting 50 million iPhones. That's what's driving the stock down.
It was down about 8 percent at one point and now just about 6.5 percent.
LAKE: Right, and we're just going off headlines, and, Shelly, I have one more quick one to Samuel. Because investors - this is kind of a
kneejerk reaction. China - was China the trouble spot?
BURKE: It doesn't look like it for now, at least in the preliminary looking over their press releases, China sales doubling they say. So it
may not be China. It does look like it is though weaker than expected iPhone numbers.
LAKE: Right. Well so Tim Cook I'm sure is going to be asked about what exactly that's about. Shelly, is this a lot of reaction about
nothing? I mean, when you look at the massive number this company is posting, the fact that according to Gene Munster they seem to be gaining
market share on the high end, should we be disappointed by this?
SHELLY PALMER, HOST "SHELLY PALMER DIGITAL LIVING": Look, people who are caring about what the stock is doing today are going to care a lot
about this. Because this is movement and if you trade movement, you're going to love today.
If you're long on Apple, you say long on Apple. They are about to break Apple television in Q4, we don't know what that's going to look like
but it's going to be massive.
They have a strategy to extract the highest-end consumers in the world, give them something to aspire to, give them a platform to consume
on, and they hand advertisers these consumers on a platter.
I'm sorry, that's the best strategy in the entire business. And if you sold 48 million more devices that'll do that, two thumbs up. If the
stock price is going in the wrong direction - OK -
LAKE: Yes, maybe -
PALMER: -- that's the market but it has nothing to with Apple or their strategy or what's to come. So these are just people who are playing
Apple games.
LAKE: Yes.
PALMER: I am very long on Apple.
LAKE: And a company that potentially might be sitting on $200 billion in cash to play with as well I think teed up (ph).
Shelly, we talked a lot - there was - there were -- questions about whether Apple had lost its way, whether it had lost its mojo, what about
Tim Cook? Those sort of - that seems to be - have been silenced they seem to be.
Even if you're not sure about the Apple Watch, they seem to be sort of as you say perfecting this ecosystem and they have pricing power - even in
places like China they're getting people to pay up for product.
PALMER: Look, at the end of the day the Apple Watch may and/or may not successful, I am not long on the Apple Watch. I think the Apple Watch
is a horribly failed experiment. I know I'm going to be proven wrong if you'll go -
LAKE: Because I love mine, Shelly -
PALMER: -- yes, don't say anything bad about it, no no, no.
LAKE: (LAUGHTER)
PALMER: But at the end of the day, their supply chain is unmatched in the world, their strategy is unmatched in the world and their performance
with respect to delivering high-end merchandise to high-end individuals - packaging those individuals for advertisers.
LAKE: Sam, I want to ask you - this is a stock that's not just important to short-term momentum professional investors. This is a stock
that is widely held and matters a lot to - sort of - people's sentiment about how things are going.
BURKE: You just saw that in the report I did earlier in the show with the Chinese-American couple who started out with a few tens of thousands of
dollars and they say they've turned it into millions of dollars. And you heard her say when I asked her about the Apple Watch, she said, look, it's
just the first generation. They can improve and if you look back at iPad numbers, they were only 3 million in their first quarter.
We don't see Apple Watch numbers broken out in this report, yet analysts expect about $3 million. So maybe if they don't get it right this
time around, maybe they'll get it right next time around.
LAKE: Did I mention I love my Apple Watch? Did I mention that, Shelly?
PALMER: You did mention you love it.
LAKE: Listen, so good for Apple. Is it good for the economy? I mean, you have all these tech companies. We talked about Microsoft doing
well but laying off people. Should we feel that good if Apple's doing well or is that - is that a -
(CROSS TALK)
[16:45:06] PALMER: You know there's a macro - there's a macro question about the economy and what the ever-increasing pace of
technological advancement's going to mean for white collar jobs and jobs where you're using brain power.
You know, look, the industrial revolution made - gave us - the steam engine and it amplified the value of our muscles. And a lot of people who
work with their muscles got laid off and had to change jobs and now they toil the machines as opposed to be the machines.
Well, think about it - computers replace - enhance our brain ability by millions of times. People who put numbers from one column to the next,
their jobs are in jeopardy. If you do things computers could do, you're in trouble. So writ large tech companies doing better.
You know, Apple doing better mean people are buying their devices and buying the ecosystem.
LAKE: Yes.
PALMER: Tech companies writ large doing better like Cloud computing - that's a whole other story, probably for another segment and another -
BURKE: Meantime time, no matter where you report on tech in the world - whether it's California or Israel, they always say they have a demand for
engineers. They need computer engineers.
LAKE: Yes, so we see it go that way. One last note, Shelly - Microsoft and Apple used to compete. It doesn't even seem like these two
are going after the same thing at all anymore.
PALMER: Considering what's happened to Microsoft and that phone company they bought and what they had to do with it and where Apple is, I
think - you know, look - the iPhone may be down a few units this quarter but it's the star device in their lineup and probably will continue to be.
Microsoft is really doing a nice job in Cloud computing. When they get Office 365 all put together in the Cloud and Azure, they're going to
have a cash cow to end all cash cows. So they're looking strong. They don't compete with Apple head to head the way that you'd think they would.
They're still all enterprise, Apple still seems to feel very computer - kind of a good messaging come from both companies.
LAKE: Yes.
PALMER: Pretty strong.
LAKE: And if you look at the stock price, it may be interesting all right obviously. Thank you both. We're going to have to wait for the
conference call to sort of tease out -
PALMER: That's right.
LAKE: -- a lot more detail about exactly what's going on underneath the hood. So stay tuned. Shelly Palmer and Samuel Burke - thank you to
both of you.
Now Pope Francis says humanity's reckless behavior has pushed the planet to a breaking point. He's gathered some of the world's most
powerful local leaders at the Vatican to push the U.N. to do something about it.
(COMMERCIAL BREAK)
LAKE: "Humanity cannot separate itself from the environment or see itself as something outside of it." Those words of Pope Francis as he
takes on the issue of climate change.
Pope Francis has gathered 65 mayors from around the world for a conference at the Vatican. It's aimed at putting pressure on global
leaders to adopt bold measures during climate talks in Paris later this year.
New York City Mayor Bill de Blasio described the Pope's message as a call to challenge corporate interests.
(BEGIN VIDEOCLIP)
BILL DE BLASIO, MAYOR OF NEW YORK CITY: His Holiness challenges us. He challenges us not to be captives, not to be slavish to consumerism - as
citizens to rise above it. He also challenges us not to be captive as leaders to powerful corporate interests.
Encyclical is not a call to arms, it is a call to sanity. It's a reminder that we as leaders have a sworn duty to protect. But how can we
protect our people if we accept a status quo that is slowly killing our earth?
(END VIDEOCLIP)
[16:50:01] LAKE: Norsk Hydro is known for its production of aluminum which, as it happens, is a key material in technologies like solar panels.
The company is also a big producer of renewable energy through its hydro power plant. The Norsk Hydro CEO told me how his company balances
energy-intensive aluminum production with its goal to minimize the environmental footprint.
(BEGIN VIDEOCLIP)
SVEIN RICHARD BRANDTZAEG, NORSK HYDRO CEO: If you look at the total portfolio, we are quite well covered with hydro power but we would like to
increase that share even more because of renewable energy because aluminum is energy-intensive metal. But saying that, we should not forget that
aluminum is also a very recycling-friendly material. And when we are recycling aluminum we need only 5 percent of the original energy content to
bring it back to the value chain.
So this is a big advantage for aluminum.
LAKE: It certainly is. But as you look forward, I mean, you've got to plan for the future. You have the Pope today just saying we can't
separate ourselves from the environment and saying businesses need to consider the environment as much as they consider profits.
For a company that has a foot in both worlds - both traditional industry and renewable - how does that influence how you balance your
business going forward?
BRANDTZAEG: We are probably one of the few metal and mining companies that have an ambition to be carbon neutral in 2020. We have an aspiration
to become bigger, better and greener. And the greener aspiration is very much about the climate, also covering the total sustainability agenda for
hizzel (ph).
But, as I said, we have an ambition to become carbon neutral in 2020 and we are well on the way to achieve that target.
LAKE: You managed to beat expectations despite the fact that the market still seems to be dealing with oversupply. What is your expectation
for demand in the second half of this year?
BRANDTZAEG: Well we are taking down the expectation for the global demand from 6 percent to 5 percent this quarter based on the situation in
the different segments of the market as we see it.
But 5 percent is still a good growth rate of aluminum consumption and we see that we have almost surprise (ph) situation today that is also
affecting the prices and the premiums. But going forward, we will be very much supported by the fairly high growth rate in aluminum.
And if you compare aluminum with other materials and metals, it is among the highest speed growth rates that you can find.
LAKE: And for those who are maybe not that familiar, where is the growth for aluminum? You sort of said it's the high growth area of the
market - what exactly is that?
BRANDTZAEG: Well if you look into automotive and transport, there is a strong drive to change other materials with aluminum, to reduce energy
consumption and also of course reduce emissions.
So this is the main driving market segment as we see today - automotive and transport. But you also have many other segments like for
example can business is seasonally very strong in the second quarter, building and construction in the U.S. market is picking up and there are
also many other markets which is moving very much in a positive direction.
(END VIDEOCLIP)
LAKE: Elsewhere at the Vatican conference, the Pope called for action on human trafficking, something which CNN is shining a light on as part of
our "Freedom Project." In a new documentary, the actress and activist Jada Pinkett-Smith investigates modern-day slavery happening here inside the
United States.
She interviews a young survivor who was sold for sex. She said she was lured in by someone she thought was her friend.
(BEGIN VIDEOCLIP)
"SACHARAY," SURVIVOR: You thirsty? Is that why you're (inaudible)? You thirsty?
JADA PINKETT-SMITH, ACTRESS AND ACTIVIST: Sasha Ray was born and raised in Florida. By the time she was 14, she was constantly being teased
at school.
SACHARAY: What I got picked on a lot about was being black - my really, really dark skin I guess.
PINKETT-SMITH: She felt alone at home and at school. Sasha Ray says that's why when an older classmate offered friendship, she jumped at it.
SACHARAY: I thought she was like my best friend because I could like tell her anything. One day she asked if, you know, I want to skip school
and have fun you know. So we went to this barbershop. When I was there she introduced me to these guys.
PINKETT-SMITH: Sasha Ray's new "friend" had just led her to the man who would eventually become her trafficker.
SACHARAY: They talked about how I was going to make money, how it was going to be easy, we didn't have to depend on nobody. And it was all
sounding good and stuff so I fell for it.
PINKETT-SMITH: Was there any kind of grooming process, like when this first started? Or it's just something that just happened and you - he -
was just expecting you to learn on the way?
[16:55:00] SACHARAY: He slowly brought it on when we got closer, when he felt like he got closer to me. He usually did it out of the back of the
barbershop. And he'd even have people that worked with the post office - mailmen - come in. Mail men came in and paid their money to him, came back
there to me.
(END VIDEOCLIP)
LAKE: The "CNN Freedom Project" documentary premiers on Wednesday night - "Children for Sale - the Fight to End Human Trafficking. That's at
8 p.m. London time, 9 p.m. Central Europe, only on CNN. And we will be right back with more in just a moment.
(COMMERCIAL BREAK)
LAKE: One of the most popular video games in the world will feature a woman on the front cover for the first time. Hot on the heels of her World
Cup success, U.S. Women's Soccer star Alex Morgan will feature alongside Lionel Messi on the cover of "FIFA 16." That will be available across the
United States.
In Canada, women's team captain Christine Sinclair will be on the front cover. Publisher E.A. says the game will also feature a playable
woman's team for the first time. U.K. versions will still feature a male player on the cover after Liverpool's Jordan Henderson won a fan's vote.
Time for a quick reminder of how U.S. markets in the U.S. finished. A choppy day for the Dow which fell by more than 180 points. The index was
dragged lower by weak performances from tech giants IBM and United Technologies.
Over in Europe, a nine-day run has come to an end. Stock markets across Europe ended in the red, ending their longest winning streak in over
a year. Investor sentiment was hit by a weak set of corporate earnings and of course that sell off we saw in the U.S.
And that's "Quest Means Business." I'm Maggie Lake in New York. Thanks so much for watching.
END
