Wall Street Week with Louis Rukeyser; 2532; What's Next for Steven Jobs?

For more than a quarter century America's most popular program about the economy people and their money Wall Street Week With Louis real geyser is made possible by the Corporation for Public Broadcasting. And by the annual financial support from viewers like you by Prudential Securities with more than fifty six hundred financial advisers nationwide credential securities can help you invest your money wisely by A.G. Edwards serving the investment needs of individuals and businesses from more than 100 years built on a foundation of trust research and commitment to investor success. And by Oppenheimer Funds because sort of investment performance and sound financial planning go hand in hand. Produced Friday February 9th. Our panelists are Harvey Eisen Mary Farrell and William waters. Tonight's special guest is Steven P. jobs chairman and CEO. Picks are. Going to have and I'm Louis Rukeyser This is Wall Street Week. Welcome back.

Well folks welcome back to real life. While everybody else insists on taking the politicians seriously. Well Bill Clinton chortles at the bizarre sight of all his likely Republican rivals conveniently tearing themselves apart in Iowa. We'll be focusing on what truly moves the American economy forward. Hint it doesn't come from Washington D.C.. From my guest tonight is one of those who has genuinely changed American life much more than any 50 Congressman. It's easy to forget sometimes as political figures argue heatedly about who will do more for America. But the authentic improvements in our lives tend to come far from the nation's capital and depend very little on which noble statesman is puttering around the Lincoln Bedroom. They come from the scientific laboratories that find new cures for centuries old diseases and they come from the inventors who may not know Lord Keynes from Prince Albert. But whose remarkable advances have improved in the ease

the average American's life more in the past hundred years than in any comparable period since the first caveman went courting with a club. Tonight In short we salute the entrepreneur. The fellow who with total political incorrectness gets filthy rich. While with total economic correctness vastly enriching our lives. Steve Jobs personifies much of the American dream quirky iconic lastic anything but one of the boys. He had much to do with making a generation of young Americans make friends with the personal computer. And though he has barely lived for two score years he has already had more dramatic ups and downs than the average seesaw. Now he is once again the comeback kid. And we'll be talking about his future and ours tonight. But first let's look at a see saw that lately has been moving only up. And check out the playground in Wall Street in the week. Yes past. The Dow Jones Industrial

Average simply refused to stop. Two weeks ago it had never seen 50 300. Now it has topped fifty three hundred fifty four hundred and fiftie 500 up more than 500 points since January 10th and setting a record every day this week to close with a gain of one hundred sixty seven points at 55 forty one point sixty two. And every number you see here is also a record except for the AMEX which set one yesterday. Our elders were unmoved though after last week's slight downgrade to a still bullish plus for reading on the outlook for the next six months. With gold easing off the dollar mixed and bonds virtually unchanged. Stock investors were in a tug of war between those who thought the economy was tanking and those who thought that very softening would produce still lower interest rates and therefore a revival. This week at least the Bulls again won big. But it may be worth noting that while the Dow has risen more than 10 percent just since January 10th.

The average stock is going up less than half as much. And if the Dow continues on its present pace it will have more than doubled by Christmas. Not even the most starry eyed optimist expects that. Two weeks ago you may recall I delivered my own exclusive forecast for the year. Free for nothing and guaranteed to be worth every penny. In which I comment on a range of arcane indicators including the fact that we are about to start the Chinese Year of the rat. To me this was a sign that we should look out for the politicians. But Gregory Weldon a viewer in Princeton New Jersey points out another possible omen. The year of the rat heliports has historically been the best time to buy the Tokyo Stock Index. The neck eye has risen an average fifty four point six percent in years of the rat he notes. Nearly a dozen points ahead of the runaround up among the 12 traditional Oriental year is. The year of the Dragon. So maybe in 1996 we should just be looking out for the Japanese rats.

Very far where you setting your traps these days I've set them right back here in the United States I think there's more to go the momentum in this market comes for a reason it's the interest rates that you mention and it can justify higher stock prices as they go down. There seems to be a little bit more optimism than there was a month ago. Were you at all. In this case I think it maybe justified a month ago we had those rats in Washington acting like they'd never get out of their maze and give us a budget deficit accord. I think now the realization when you even have the president saying that the era of big government is over we are going to make progress on that deficit we've made progress already and I think that will bring these interest rates down further. What would you be buying these days when you have a lower interest rate environment historically the best plays are the growth stocks. You know the names we've been hearing for the last year Coke Pepsi Procter and Gamble are hitting new highs on a daily basis I mean I'd expand the list now and go after some of the you know names like

Omnicare us filter that haven't gone up perhaps as much but I think where you want to be in a slowing earnings growth environment because let's not get too euphoric here. But those lower rates should be good for the growth stocks. It's hard to define too euphoric if the last three weeks. Harvey Eisen before I ask you for the overall market presell Chrysler today announced a deal which the market first love then hated. What do you make of it. Well I think it's definitely negative for the stock and maybe positive for the company but what you've done is you've taken the whole concept of a takeover of Chrysler out of the picture. So they're going to buy back stock they've appeased Mr. Korean. But the bottom line is the stock in the short term probably doesn't do very much. So you're not a big buy the autos. No. What do you like and what do you think of this market run up. Well Lou this is as good as it gets I mean this is the this is the blow off phase. This is a bull market this is an election year. Alan Greenspan wants to be reappointed. This is what you're in this business for. This is it this is the best for me I like the drama.

Conflicts no conflict no conflict. How long are you going to be the best is that we have to come down at some point a little bit. Yeah but if you look at history election years are always up years. This is going to be a year where the economy muddles along so as Mary said interest rates are going to stay down. Stocks are going up so they're probably in my view we're going to continue for the balance of the year if you want to worry about something I start to worry about 1997. Now he says it's time to buy the big traditional Bostock's What do you think. Well it's always buy It's always time to buy those They're great companies but I can tell you in the end of the bull market in the final phase you can make so much money in small cap stocks if you pick the right ones you can double triple your money so we're moving into small caps I am certain. And why are you worried about 1990s up. Because after the election is done and all the hoopla is over I personally disagree with a lot of the experts I think the economy is going to do better this year. And if that happens where rates are going to start to rise and I think when you when you talk about 97 then the president is going to be able to do whatever he wants right now he's got to keep this thing going.

Bill what is what do you make of it. I'm getting a nosebleed. I think this market is really blowing off on the upside I think today was instructive to see it up 36 at mid-session then down 20 then closing just just above just above water. I think it started a little tired I think we've got to have. I think we've got to have some kind of a correction here to put some rationality into the whole thing. It's entitled to correct this one. Absolutely. Now I don't think is going to be a deep one. I would say not more than 5 percent maybe not even that. But at this euphoria that Mary talked about is wild its volume is huge. More money came into mutual funds in January of 96 than ever any month in history by a factor of eight billion dollars. That's hoping the market is not all that sure it is but a lot of that was here in bonuses and that's dried up so where does where does the liquidity come from here. Does this growing optimism or you. Very much so. That's why my nose is bleeding a little bit. But back to your opening about the fellow from Princeton the Japanese market if it breaks out above 21 5 on the Nikkei could be a very interesting place to take money over the next six

to 12 months. Where else would you put money. I would put money in health care stocks I would put money in selected technology stocks I would put money an interest rate sensitive stock select if you force an energy energy Weatherford in terrorism favorite of mine I like Cisco and Sun in the technology stocks I like Columbia HCA in health care. Financial financial Chemical Bank I think is going to be an interesting situation with the merger now completed and First USA the card company. And if you've got a nosebleed YOU KNOW WHO TO PUNCH. But will soon be scheduling another round of your questions so keep them coming along with your comments and your Valentine's and your baby pictures to us here at Wall Street Week Owings Mills Maryland 2 1 1 1 7 or fax them to us at 4 1 0 5 8 1 0 9 8 0. Now before we meet tonight's special guest let's get to know him a little better. At the age of 40 Steve Jobs is already one of the classic entrepreneurs of modern American history an investor who has become a model for many who dream of building

their fortunes by building their own companies. He began tinkering with electronics as a child and did most of his early work on this bench in his parents garage. By the time he was 20 the first Apple computer emerged and in 1976 when he was barely 21. Jobs co-founded Apple Computer incorporated with his high school buddy. Steve was an ACK. Apple grew quickly attracting a loyal following among early personal computer enthusiasts on the day Apple went public in 1980. The 15 percent share held by jobs then just 25 was valued at 217 million dollars. And some ordinary investors did well too. If you were smart or lucky enough to invest $10000 in Apple computer at its low in August 1985 your stock would have been worth more than ten times that. Less than six years later even if you didn't know a bit about bytes.

Jobs was center stage when he unveiled the highly successful Macintosh computer in 1984. I'm known. For 25 jobs relationship with Apple that turned sour and he resigned to run not one but two other businesses. The first he called next. A company he built around an ambitious new personal computer that was released with much fanfare in 1988. But sales were less spectacular and the sophisticated but expensive blackbox never caught on. The project was abandoned and next still privately held moved on to developing a new software writing technique that some technology buffs believe will eventually turn the Internet into an indispensable tool for doing

online business. While next was evolving in jobs he was careful to diversify. He quietly invested 50 million of his own dollars in Pixar a computer animation company in Richmond California that he had purchased from film producer George Lucas in 1986 for 10 million. Jobs as Pixar employees including former Disney animator John Lasseter spent most of the next decade developing a new 3D animation software which they fine tune by producing some memorable television commercials. And short animated film. This one entitled to oil won the Academy Award for best animated short film in 1988. Who all that computer generated fun. Pixar developed the ability to take crafted models and reliably turn them into dynamic three dimensional computer images. Twenty million Americans bought tickets to see the result

last year. When Disney released pic saw its first feature length computer animated film Toy Story a blockbuster hit that has taken in more than 175 million dollars in domestic box office alone. And in what was perhaps the best time to initial public offering in modern memory. Pixar made its market debut last November just as toy story published today generated by Disney was at its peak when the stock soared close to $50 a share on the first day of trading. Steve Jobs a stake was briefly worth just under one and a half billion dollars. Not bad for an entrepreneur who began by tinkering in his parents garage and is still barely old enough for a mid-life crisis. Oh yeah. Pixar stock has tumbled since then

and even after gaining nearly two points today it is still only 24 and a quarter less than half where it traded on that giddy first day. Was that initial excitement all just a fictitious if thrilling children's story. Or is the next chapter for Steve Jobs likely to be his gaudiest for some thoughts on that. Let's go over now and meet tonight's special guest Stephen P. jobs. Steve welcome we're very pleased to have you here. Thanks for inviting us. Steve Jobs continues to be the embodiment of the California technological boom right down to his volatile up down up career and his preference for the easy living in Palo Alto. He just embodies it on a bigger than life scale. And with the success of Toy Story he has now made the transition in the public mind from a manufacturer of hardware to a high profile producer of entertainment software. Steve the reason that many investors quickly took profits in Pixar is that they suspected Disney would be the real winner in Toy Story

and the Pixar wouldn't even tell them the details of its deal. Can you tell us now. You know we don't go into the exact details of our deal with Disney partly out of deference to the fact that they'd like to keep it quiet but also it's a complex deal that involves building a pretty complex model of what you think all the revenue streams will be. The theatrical both domestic and international the home video the merchandise and we've tried to you know I think help the analysts understand roughly what the the overall relationship could mean to Pixar at various levels of success. So do you think the market is appraising it fairly now. You know I think Pixar is a pretty unique company in that it's got one foot as a technology company on the other foot in the entertainment industry. And although we've heard a lot of hype about Silicon Valley meeting Hollywood Pixar is the first company that's really done it. So I don't think people know quite where to put it in some cases. And it you know people will watch our execution our results and I think they'll understand is that the month's good quarters go by what should we expect next from Pixar. Well you know the Toy story has really exceeded our

expectations it's about one hundred eighty million right now I think it's a mistake box office. It's being released internationally as we speak and we're coming out with some CD ROM's based on Toy Story starting in April and they're dynamite I think they're going to pretty much set a new benchmark for what can be done with CD-ROMs home video was expected later on this year and we're well at work on our second film we're about a year into development on it. So I think we have a business model which is that we make feature films and surround them with a suite of related products. In addition to merchandise and home video there CD-ROMs and potentially you know sequels at some point in time. You first came to public attention with Apple. In recent weeks it's been one of the failure stories of Wall Street and indeed of the American economy what went wrong at Apple. Oh gosh. You know Apple I've been there a long time but my perception we won't blame you for what happened last year. No I mean my perception of it not be complete. But from the way I see I mean

Apple is a company that was based on innovation. When I left Apple of the 10 years ago we we were 10 years ahead of anybody else it took Microsoft 10 years to copy Windows. The problem was is that Apple stood still. Even though it invested cumulatively billions in R&D. The output has not been there and people have caught up with it and it's differentiation has eroded in particular with respect to Microsoft. And so the way out for Apple and I still think Apple has a future. There's some awfully good people there and there's a tremendous brand loyalty to that company. I think the way out is not to slash and burn is to innovate. That's how Apple got to its glory. And I think that's how Apple could return to it next. Which is your private venture specializes in what's called object based software. Could you explain that to someone who is not a computer nerd. Sure. The way that we most people still build software today they built everything is custom really. Everything is built by hand and everything is custom there's no ability to reuse software that you had

written prior or that somebody else had written and objects or a way to basically allow people to reuse software. An order of magnitude or two more efficiently than they can today. It's sort of the industrial revolution of software. Is this on a grander scale the equivalent of calling up a macro on the computer. It's even much beyond that. It's sort of interchangeable parts much like the Industrial Revolution brought to the manufacturing of hard goods. You have talked about Apple somewhat gently. You've also mentioned Microsoft. Much of your current effort seemed directed at constraining Microsoft. Is that accurate. Me I know. You have. Well I've read some of these computer nerd publications lately and seems to me that the fight for the Internet you envision is anybody but Bill Gates. Well I think there's a lot of people working on stuff for the Internet and next is one of those those companies as well. And for me the most exciting thing you know in the software area is the Internet. And part of the reason for that is no one owns it. It's a free for

all it's much like the early days of the personal computer and the rate of innovation is very high and we know from experience now that if any one company gets a dominant position in it no matter who that is the rate of innovation is going to going to drop precipitously. And we'd like to not see that happen for ever and or at least for quite some time. As soon as a good entrepreneur you want the market to limit Him not the government is I correct. Yeah I don't get into that so much. You know I think I admire Microsoft for their achievements and I think though that the net may be something that is you know we're going to see innovation contain them and I'm hoping that's the case. We have a net of excellent panelists for us to I would marry back to software apparently a lot of the software in the computers of the last few decades at the year 2000 is simply not going to be able to accommodate the new date with the year two we've heard some industry experts banding about numbers like hundreds of millions of dollars bringing American industry to a standstill. Is there anything to this.

Oh sure yeah. When we when we people wrote these programs 20 years ago the year 2000 was a long ways away. And so there are going to be some real problems and it's probably going to cost tens if not a few hundred million dollars to fix it. That's actually you know not the biggest problem that information systems organizations have they'll get over that and I think we'll be OK. Steve your next two pictures are committed to Disney right. What happens after that. We have a three picture deal with them as you point out Toy Story is the first. We're well into development on the second and so that's looking very good. After our third picture with Disney we really have three options. Option number one is to extend our relationship with Disney albeit on potentially more favorable economic terms. Our second alternative is to strike a deal with the studio another studio such as a Warner or universal and do something in partnership with them. And our third alternative is really for Pixar to do more of it. More of the whole marketing itself. We could always rent a studio for distribution that's very easy to do and we've got a few years to figure that out so I think we're you know trying to meet people in the other studios and understand what our options are over the next few years and to make those decisions.

Steve you mentioned that earlier that you're a unique company a common it picks are a combination of technology and entertainment. How should the investing public value the company what are the keys that it should look for. You know. When we signed this Disney deal we the way we look at it is we were going to Disney University and we're learning all of the secrets that Disney has used to produce this string of enormous successes in animated feature films. And we're actually only the second company to really ever do that. I don't I don't. Disney invented the animated feature film market in 1907 with a release of Snow White and for 60 years every other studio and even people like Spielberg have been trying to break into that franchise. And until two months ago every other studio but Disney failed to make a blockbuster animated feature film that is in industry parlance a film with 100 million dollars or more at the domestic box office. Two months ago Pixar became the second studio in history to do that with Toy Story.

And so. You know I forgot your question. How should the investing public. Oh value picks are right. And so. We think we're on to something something pretty big. Now when we went to Disney University we knew that we were going to have Disney keep the majority of the profits for the first three films but that that would be actually a bargain price to pay for learning what we would learn to break into the most exclusive club in Hollywood. And I think when we get to our fourth film We'll keep a much greater share of the profits. And I think the way people value us or the way some people look at the valuation is to take a look at those fourth and beyond film economics and discount it back. Steve let me just cut n clear nearly out of time and you've been so busy achieving that you don't spend a lot of time philosophizing but could you give a sentence of advice to a young would be entrepreneur about how to succeed. Yeah you've really got to do something you have a passion about it because it's it's

it to start a company and see it through the tough times is really hard. But you can't just focus on the money. Now every entrepreneur I've met who's focused on the money hasn't got it. That way you do have to stop many thank Steve Jobs an entrepreneur who is still entrepreneur and thanks to our panel. Hope you'll be back with us again next week when we'll be looking at an industry that may dramatically affect all our futures biotechnology. My guest Macon Ho is a top ranking biotech analyst. And I'll be asking which of these volatile companies is likely to last and whether new genes can really put big money in our blue jeans. Meanwhile there's been Wall Street Week on the issue of Kaiser and I think Wall Street Week With a loser of geysers is a production of Maryland Public Television made possible by the Corporation for Public Broadcasting. And by the annual financial support from viewers like you by Prudential Securities with more than 50 600 financial advisors nationwide Prudential Securities can help you invest your money wisely by A.G. Edwards going beyond stocks and bonds to help you create the right plan for a more

secure retirement. A.G. Edwards serving investors for more than 100 years and by Oppenheimer Funds because sort of investment performance and sound financial planning go hand in hand. Wall Street Week With Louis Rukeyser was produced by Maryland Public Television which is Solti responsible for its content. For printed transcript of this program. Send $5 through transcripts Wall Street Week With Louis Rukeyser Owings Mills Maryland 2 1 1 1 7. Transcripts are also available to subscribers of the

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