this is "nightly business report" with tyler mathisen and susie gharib. brought to you in part by -- >> thestreet.com. featuring stephanie link who shares her investment strategies, stock picks and market insights with action alerts plus, the multimillion dollar portfolio she manages with jim cramer. you can learn more at thestreet.com/nbr. how about them apples? apple beats the street with strong demand for its iphone and says next quarter will be even better than it expected. >> third quarter earnings were disappointing. they weren't what we expected. we saw some slowdowns. >> big blue bummer. ibm's latest earnings were not what the ceo expected. she also ditched the company's profit road map, dumped its chip unit and by the end of the day the stock had its lowest close

in three years. >> but should you own it should should you buy it here? one of our guests who recommended ibm shares is back to answer that question again tonight. all that and more on "nightly business report" for monday, october 20th. >> good evening. a lot of buzz on wall street today about the disappointing earnings from tech bellwether ibm, sending shares of big blue tumbling and nearly wiping out the modest gains made in the dow today. we begin tonight with the after the bell earnings from another tech giant, apple. it was like night and day. apple trounced wall street forecasts thanks to proceedout sales of the new iphone 6. apple earned $1.42 a share in its fourth quarter easily beating estimates of $1.30 a share. revenue of more than $42 billion was 12% higher than a year ago, it also topped forecasts.

apple also raised its guidance for the full year and its shares rose in after-hours trading in the regular session apple was up 2% to $99.76. josh lipton spoke with ceo tim cook earlier today. josh joins us from outside of apple's headquarters. now that you've looked over the numbers, what's the big takeaway from these amazing results? >> i think the big number certainly analysts and investors will concentrate on is the iphone. that still does account for 50% of apple's revenue. they shipped 39.3 million iphones this quarter. that was up 16% year over year and beat wall street's estimates. i did have a chance to sit down with ceo tim cook and i did ask him specific by about the iphone 6 and 6 plus. this quarterly includes nine days of sales for ten countries for those new iphones.

cook telling me he saw demand there off the charts. and he was very excited about the initial rollout of iphones in china. their shipments were down 13% year of year. back to you. >> josh, that's really amazing. nine days and those great results. josh lipton in cupertino, california. josh will be back later in the program with a look at the launch of the apple new mobile payment service. apple pay, how it works and the challenges it faces. it was a good day on wall street and a quiet day for a change with the price of oil holding steady. fears about ebola's spread subsiding. as we mentioned at the top of the program, the one thing that did unsettle the program was ibm specifically. its soggy earnings report. because of its high price, ibm is one of the most heavily weighted components of the dow industrials. today its slide, ibm's that is, kept the dow in the red for most of the session. then at the close sandbag gains that would have, could have,

should have been higher. the dow did manage to finish up by 19 points. the nasdaq by a higher 57. a jump of 1.33%. and the s&p 500 added 17. it closed back above 1900. after all that market turmoil last week, this marks the third straight day of gains for nasdaq and the s&p 500. more now on that big miss for ibm on both earnings and revenue. shares fell 7% today. as tyler said easily making it the biggest decliner in the dow. morgan brennan takes a cesser look at what's driving the slowdown and how it's getting rid of one of its struggling divisions. >> ibm has been struggling to reinvent itself as it shifts away from hardware to newer higher growth industries like cloud computing. but today's quarterly earnings did little to assure investors that the transition is going to plan. big blue's profit and revenue

sharply missed analysts' expectations. thanks to slowing sales in hardware and services. the company also announced it's scrapping its five-year plan to grow profit, an ambitious goal that was supposed to be realized next year. >> ibm, unfortunately, is saddled with two-thirds of their business that's incumbent. very difficult to make that pace of change at a pace that investors will be happy with. this will be a story we'll probably be talking about for a while. >> the report marks the tenth straight quarterly drop in revenue for ibm. but the company announced it's shedding another hardware business, micro electronics or its semiconductor manufacturing operations. in an unusual deal that will pay chipmaker global foundries $1.5 billion to take that business on. analysts say that plan rids ibm of the lower margin long struggling segment but that the company still has a very long way to go. especially since profitability is falling in ibm's other ongoing businesses as well. >> the software business didn't grow as fast as expected.

and hardware continues to be hurt by commoditization. those businesses are moving more towards an even steady state. the comps are getting a little bit better in some of those businesses, but they're still challenged. >> ceo ginni rometty said she's disappointed in the company's performance. blaming a slowdown in client buying behavior and, quote, unprecedented pace of change in the industry. the company now plans to offer a new profit forecast in january. for "nightly business report" i'm morgan brennan. and one big shareholder in big blue today, billionaire investor warren buffett. he's one of ibm's largest shareholders. with today's sell-off, it's estimated that buffett may have lost $1 billion. >> our david faber sat down with ginni rometty today. and despite those earnings and the sharp drop in share price today rometty sounded upbeat about where the company is focusing its efforts right now.

>> we're reshaping this company around analytics, around cloud and the term i use engagement, social mobile security, but all for the enterprise. collectively, almost 20% growth improved every single quarter and even individually each of those areas. analytics which ended last year at 16 billion, up in total 8%. a very large number. you take a look at cloud, greater than 50% again. and then social mobile security, every one of them. >> david faber is here with us now with more on his exclusive conversation with ms. rometty. david, welcome, good to have you with us. how big a test is this for ginni rometty? is this her first big one? is her job at stake here if she can't turn it around? what? >> i don't think her job is at stake at this point, certainly, tyler, but i will say that there's no doubt that this is ginni rometty's ibm. in fact, you could argue that the disavowing, if you will, of the road map that was put in place, that five-year road map that they tied themselves to for

many years which was originally put into place by her predecessor sam palmisano, that in a sense says finally we're done with the previous administration in any way, shape or form. the divestitures that she's focused on, the low end server business, the one announced today where they're actually paying to get rid of the micro electronics unit and all the things you heard in the interview that she just mentioned, those are her decisions. time will tell whether they are successful. >> we've seen a number of tech companies like hewlett-packard, like ebay that are splitting themselves up. do you think that that's ultimately down the road something that ginni rometty would do or that some activist investor will force her to do? >> boards are always thinking about activism at least in some way. the case to be made by ibm for why we should not do that is because we already have. and i asked ms. rometty about it. they've already gotten rid of their pc business. they've gotten rid of, with today's sale, the chip business,

they've gotten rid of their low end server business. they would argue what we really are is simply an enterprise technology company. we provide technology services to big businesses, and they want all the things that we have, so why would you separate them? that said, this is a behemoth. 430,000 employees. and so moving it quickly in what everybody argues is a faster moving environment can be difficult. >> that was going to be my question here. this is a big, big company. can it be nimble enough in today's world of cloud computing, a game, by the way, that i think most people would say they're already playing catch-up. >> yeah, we think amazon web services, we thing other names when it comes to that. although they have $4.4 billion in revenue. but out of a $100 billion revenue base for the company, even when you're growing more quickly, it takes a time to really turn that around. today's problems had to do with what software to a certain extent and the services business. she said they didn't execute as well as they could have in sales

and software. that gets to the point of are you not agile enough? rometty would say no. in fact, she did in our interview, that is not the issue. but many would argue, well, you've got a lot of smaller more agile competitors. >> you talked to her about warren buffett. we just reported that he lost a billion dollars today alone from this big sell-off. what does she have to say about warren? >> she wouldn't specifically answer in terms of whether she spoke to him or not. one would have to assume she did as she did to many of her large shareholders. before the news, unclear how many you really do talk to. but mr. buffett was quiet, when cnbc reached out to him, he did not offer any comment as far as i'm aware. he's still a large shareholder there. there's no reason to believe that is not going to still be the case and he is not supportive, but i will be curious to see the next time he speaks publicly about ibm. >> david faber reporting. later in the program one of our market monitor guests who

recently recommended ibm is back to defend his call and explains why he still thinks it's a buy. nine months into his role as microsoft's ceo, only the third one in company history, satya nadella spoke exclusively with our john forte. nadella talked about how well positioned the company is in the $100 billion cloud computing market which has become a battle between a handful of tech giants. >> i think that if you don't already spend a lot of capital on the order of 4 or $5 billion each year to just grow your cloud, probably it's a little too late to enter the market. i mean, that's the entry barriers. and there are a few of us who are in that mega scale of cloud. >> so that's the cost of entry, if you're not prepared to spend 4 or 5 billion a year, forget it? >> you have to be in that business and if you're a mega scale cloud provider you're already committing a lot of

capital. in our case we've been committing it for years. there are other players, amazon and google in particular but we're one of the three in that category. >> nadella also waved off investor calls for microsoft to split up separating its consumer software business from its enterprise and cloud division saying its customers use the same products at home and at work. another tech giant making news tonight yahoo! "the wall street journal" reveals that yahoo! will unveil cost cutting moves likely involving job cuts as early as tomorrow after it reports its quarterly results after the mark market close. the company is expected to lay out plans for tech start-ups using part of the nearly $6 billion it made from selling sharesalibaba. coming up on the program, why the head of the fbi thinks companies like apple and google are putting privacy protections ahead of public safety. that's next.

well, despite posting or besides posting some caramel-covered earnings after the bell, it was a huge day for apple, which launched it'sle pay mobile payment system today hoping to replace your wallet with your iphone. josh lipton shows us how apple pay works and how the rollout went. >> the next time you're shopping for groceries, you can leave your wallet and credit cards at home. that's apple's hope as it officially launches apple pay,

its new mobile payment service that allows users to buy goods with their smartphones. users walk up to the front of the checkout line and hold up their iphone 6 or iphone 6 plus to a special reader. then by simply pressing the fingerprint sensor, that transaction is completed. >> taking out your credit card and swiping is pretty easy. we wanted to make something that was even easier than that. >> with this new service, apple is trying to capitalize on the mobile payments market, which will quadruple to $90 billion by 2017 according to forester research. the fast growing market is attracting a lot of attention from tech giants including ebay's paypal, amazon and google. apple has disclosed how it sbepds to monetize its new service but it already boasts an extensive network of partners at 220,000 locations including whole foods, mcdonald's and macy's. apple pay does face some challenges like convincing more merchants to adopt the technology and some industry

analysts are cautious about its mass appeal. >> it's very easy to conduct transactions with credit cards, debit cards, with cash, you don't need a battery to be able to do those types of things. just some of those characteristics are, you know, kind of what apple pay has to contend with, has to contend with ingrained consumer behavior. >> apple disagrees with that analysis arguing that apple pay will prove popular because it's much faster than traditional payment methods and it's also more secure. here's why. a unique 16-digit security code is created each time a consumer authorizes a new purchase. that one-time code, if intercepted by hackers, can't be used for another transaction. apple's executives are clearly excited about apple pay as are financial analysts who see it as a potential new source of revenue for the company. now we wait and see whether consumers are equally

enthusiastic. for "nightly business report" i'm josh lipton in cupertino, california. but apple along with google have now found themselves in the crosshairs of the fbi. it's all about new encryption technology that may make it harder for investigators to do their job. >> reporter: in april, brian horn was sentenced to death for the 2010 killing of a 12-year-old boy he had kidnappeded. a conviction the fbi says was won in part because law enforcement was able to read text messages on horn's phone. now fbi director james comey says apple and google's just-announced default encryption could keep the police from capturing criminals like horn. the company says the new system will mean apple or google might not be able to fulfill a legal warrant for ak soes the a suspect's phone. the director of the fbi says that is dangerous. >> we need assistance and cooperation from companies to comply with lawful court orders so the criminals around the

world cannot seek safe haven. we need to find common ground. we care about the same things. >> reporter: and the fbi director said congress may just have to force american companies to accept lower profits in the name of security. >> what we may get is to a place where the u.s., through its congress, says, you know what? we need to force this on american companies and maybe they'll take a hint. someone in another country says we sell a phone that even with lawful authority people can get into but that we as a society are willing to have american companies take that hit. >> reporter: one former federal prosecutor underscored his point saying criminals can be incredibly boastful online leading to a treasure trove of evidence. >> they can have photos with their co-conspirators or with bricks of cocaine or with piles of money. so that can be useful. the contacts of this guy works with and for will be on his phone. i.m.s, instant message, where he's maybe working out with

another co-conspirator where they're going to do a pick occupy or meet. >> reporter: but civil libertarians argue the fbi is asking for too much. >> i don't think that his argument was particularly convincing. what he's talking about are a few outlier criminal cases and it doesn't really justify the vast invasion of privacy to the general public and the potential security implications of what he's saying. what we've seen come out over the past few years with these revelations from snowden and others is that law enforcement has really been abusing its capabilities. >> reporter: comey says he doesn't know exactly what the technical fix here aught to be but he did say that the post-snowden pendulum needs to swing back to law enforcement. a warning from chipotle put a damper on its earnings report. that's where we begin tonight's market focus tp mexican fast casual chain saw sales soar in its latest quarter with results that topped estimates, but the company did warn that sales growth may slow down next year and that sent shares down

initially after hours. during the regular trading session, the stock was almost 2% higher to 653.03. but you see the slide after hours. ncr saw its shares tumble after its outlook disappointed investors. the company which makes point of sales devices and atms cut its guidance for the year citing weak innocence the retail industry and fear over customer security data. and shares off 21%. 21% to 23.54. hasbro says strong sales in its boys division which includes transformers and marvel toys helped its quarterly results. earnings topped estimates. revenue in line with what the forecasts thought. and the parent of north face and other clothing brands reported results that missed slightly on both the top and bottom lines. despite that the company raised its profit forecast for the year, hiked its quarterly dividend 22%. shares up 20 cents about they

finished at 63.96. sears has a new plan to raise cash. the struggling retailer says it will sell debt to stock owners. this is a third time in about two months that ceo eddie lampard has agreed to pump funds into the company. shares surged 23% to $34.96. shares of trinity went the other way after the company was found guilty of making false claims to the government. a jury found that the guardrail maker deliberately withheld information about cost saving changes to its highway guardrail systems that made them more dangerous and defrauded the government out of $175 million. shares fell 12% to $31.63. and russia has broadened its crackdown on mcdonald's. the fast food chain says that half of its location in russia are under government investigation and a regulator has closed nine restaurants in

recent weeks. we'll find out more about that when the company reports earnings tomorrow morning. ahead of that shares rose to $91.59. coming up, if you own shares of ibm, what should you do with them? a guest who recently recommended the stock is back to answer that question and more. they've called off their $54 billion deal because of new rules put in place by the obama administration to curb so-called inversion deals.

as a result, it will pay shire a breakup of more than $1.5 billion. more people are getting higher but they'high -- hired but they're not getting more money. only about a quarter of companies surveyed raised employee wages during this summer's quarter. that's down from 43% from the spring quarter. the survey found that one-third of those companies say they plan on boosting wages in the current quarter. there's still many believers in big blue despite the big sell-off in ibm stocks today. one of them is our market monitor who came on our program four weeks ago and recommended ibm when it was trading at $194. today he still stands by that call and is here to tell us why. he's vice chairman and portfolio manager with aerial investments. nice to have you with us. >> thanks for having me on. >> don't want to put you on the spot but there may be many

viewers watching the program and based on your recommendation bought ibm at $194. what would you tell them today of what to do with their shares? >> well, it's a humbling day. warren buffett and i, unfortunately, are both big investors in this stock. he much bigger than me. but clearly it's been a wonderful stock for us since we bought it in 2005, more than doubled since then. people always hated ibm, but clearly the last couple of quarters they missed expectations including my own. i did not see this hiccup coming. a very soft quarter. in fact, i think even management didn't see this coming. the month of september was weak and disappointed all of us. >> but what are you supposed to do if you bought it at 194? do you sell it today? >> unfortunately, this is a hard part of this business. it's always fun to have stocks that are going up, lots of people like to buy stocks that are going up. in fact, the opposite is the

best thing to do. it's the best thing to do is to buy low and sell high, to buy what others are selling. the stock is cheaper today. on an absolute value basis. it's trading at about ten times forward earnings, very cheap valuation in a market trading at 15. so we would say it's not a good time to sell. the company's still a leader. their u.s. business is actually doing fine. most of the problems they had today were in china and emerging markets and those markets have slowed. >> so not a good time to sell. i know that you really can't tell us what, if anything, you have done with your particular shares. it's been a longtime holding of yours. but after an earnings report like this, what kind of post game analysis do you go through with an eye towards deciding what you're going to do with this holding and whether you have gotten all of the profit out of it that you can reasonably expect for the time being? >> that's the right question,

tyler. and what you have to do is take a step back and look fresh and make sure you're not using your old valuation analysis, that you're not locked into the past. ask yourself a question, if i didn't own it today, would i buy it today. and the answer to that is absolutely yes. at this valuation, this is a company that's a leader in the whole field of big data, the watson computer that's so famous, that wins "jeopardy!" putting them at the forefront of analytics. there is a change going on that people are leasing software instead of just buying it, and that puts pressure on earnings, but it is something i would buy today if i didn't own it. >> that's a very interesting perspective on it. thanks very much. finally tonight, it was 27 years ago yesterday, october 19th, 1987, black monday, worst day ever for the dow. it lost 22% of its value. one session set off the panic on

wall street. the equivalent drop would be 3700 points in one day. remember it well. >> i looked it up. the dow closed at 1738, lower than what the s&p is today. that's "nightly business report" for tonight. thanks so much for watching. i'm suzie garrick. >> i'm tyler mathisen. we'll be here tomorrow night, hope you will be. "nightly business report" has been brought to you by. >> stephanie link who shares her investment strategies, stock picks and insights with action alerts plus, the multimillion dollar portfolio she manages with jim cramer. you can find out more at thestreet.com/nbr.

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