CNN MONEYLINE NEWS HOUR
Dow Rises 257.59 to 10,102.74; Nasdaq Climbs 106.32 to 1,852.03; Motorola Posts Operating Loss for Q1
Aired April 10, 2001 - 18:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
WILLOW BAY, CNN ANCHOR: Another roaring rally cuts across Wall Street. This is MONEYLINE for April 10th, 2001.
Stocks rocket. The Dow breaks back above 10,000, the Nasdaq soars 6 percent on hopes that bad news on profits is already old news. But the profit trouble is fresh for Motorola investors, the company posting its first operating loss in 15 years.
A booming business emerging from the dot-com collapse: Reselling high-tech gear for a song. Is it a threat to companies already struggling?
And, why mad cow, and foot-and-mouth disease are spreading fear, not just on farms, but in the fashion business as well.
ANNOUNCER: This is MONEYLINE. Reporting tonight from New York, Willow Bay.
BAY: Hello, everyone and welcome to MONEYLINE. We begin tonight with a buying frenzy on Wall Street. Stocks took off once again today, a session reminiscent of last Thursday's explosive rally. One hope: That investors have already factored in all the grim profit news emerging from corporate America.
But skeptics fear this is just another temporary reprieve in a brutal bear market. Even if the skeptics are right, investors welcomed the gains anyway. The Dow soared 257 points or more than 2 1/2 percent, closing at 10,102, above 10,000 for the first day in weeks. It has been a wild ride for the Blue Chips over the past month, plunging nearly a thousand points only to stage a strong rebound over the past week.
The Nasdaq has rebounded over the past week as well, today surging 106 points, or 6 percent. And the S&P jumped 30 to close at 1,168. The question now: Can the buying momentum continue tomorrow? We have complete market coverage tonight with Terry Keenan, John Metaxas, and we begin with Allan Chernoff outside the Nasdaq market site in Times Square -- Allan.
ALLAN CHERNOFF, CNN CORRESPONDENT: Willow, one sign of a bear market mentality: The Nasdaq composite jumps 6 percent in one day, and many people on Wall Street have little faith in the rally. Time and again the Nasdaq has delivered big one-day gains only to give them back, which is why many market pros refer to today's action as a bear market bounce.
(BEGIN VIDEOTAPE)
(voice-over): Rather than a rally off optimistic news, traders characterized today's gains as a bounce, often oversold condition. As the market opened strong in the morning, short sellers, who sell betting shares will fall, covered their positions by buying, sending the market higher.
TIM GHRISKEY, DREYFUS: We really, I think, reached some very oversold levels, at least on a short term basis, and the market, especially technology, wants to rally into that. You see a lot of short covering on days like today.
CHERNOFF: Trading was lopsided. Rising stocks got five times their share of the volume on the Nasdaq. In fact, it was the most depressed stocks that enjoyed the biggest gains. Former high flyers in fiber optics like Ciena, JDS Uniphase, Corning and Nortel Networks; networking companies including Juniper, Redback, Network Appliance, Cisco and Extreme Networks. The Dow industrials closed above 10,000 for the first time since March 15. Pacing the Dow's rise: 3M, Boeing, Honeywell, and IBM. But a day of gains is not enough to convince skeptics.
FRED SEARS, INVESTOR CAPITAL FUNDS: I'm still in the camp that says that we're in a bear market and this is a rally in a bear market. If we have three days like this I'll be much more convinced that we've turned the corner and we're going back into a bull market.
CHERNOFF: Even at Merrill Lynch, the advice from the technology stock strategist: Don't be fooled by a bear market trap.
STEVEN MILUNOVICH, MERRYL LYNCH: We think most investors should sell into the strength. Hard to say how long the strength continues, maybe a few weeks, might even be a couple months, but we would take this opportunity to lighten up on the strength.
(END VIDEOTAPE)
CHERNOFF: Earnings season is upon us, and Wall Street is expecting corporate America to announce profit declines, with little prospect of improvement in the near future. Not the kind of news analysts say that is likely to spark a sustained rally -- Willow.
BAY: Fair point, Allan. Allan Chernoff, outside the Nasdaq, thanks.
Investors, as Allan mentioned, have been bracing for companies to announce profit declines. And after the bell today, Motorola did worse than that. It reported a quarterly loss, losing 9 cents a share. Worse than already lowered expectations. But Motorola shares are not moving much in late trading. Investors waiting for more guidance from the company. That's expected tomorrow morning.
Steve Young has been crunching the numbers since they were released and he joins us now with what he's found -- Steve. STEVE YOUNG, CNN CORRESPONDENT: Willow, one measure of the economic slowdown is that this red ink, spilling across the world's second biggest mobile phone maker, is Motorola's first quarterly loss in 15 years.
(BEGIN VIDEOTAPE)
(voice-over): Motorola's performance was hobbled by a slow down in mobile phones and chips, and despite guiding analyst lower twice, the company didn't make its number, reporting a nine cent a share, two cents worse than the already lowered estimate. Revenue for the quarter fell 11 percent to $7.8 billion dollars, down from 8.8 billion a year ago.
LARRY SIEBERT, BARRETT ASSOCIATES: It's unfortunate that a personal communications, the hand set phone business was pretty weak, down about 29 percent. And the semiconductor side of the business was down 22 percent, which is another large sector of the business. The bright spot was in broadband, and that was up actually 21 percent year over year. So a smaller portion of the business and unfortunately it didn't have a big enough impact.
YOUNG: In the past year Motorola suffered a meltdown from around $53 to dangerously close to a single digit price. The stock took a 30 percent whack last week on rumors, later denied, that the company was having liquidity problems. In its chip business Motorola reported orders down very significantly in the Americas and Europe, down significantly in Asia but up slightly in Japan.
The company doesn't hold a conference call until the morning. In a statement the chairman and CEO Christopher Galvin said, "The U.S. economic slowdown is beginning to spill around the rest of the world." There was no clear guidance about future quarters.
JEFFERY SCHLESINGER, UBS WARBURG: Near term I don't see much that's going to change in the second quarter. I think the first real chance for significant improvement on the income statement side will be in the third quarter.
(END VIDEOTAPE)
YOUNG: Still struggling to get costs under control Motorola confirmed today to CNNfn, it imposed a freeze on merit raises for most workers two weeks ago, something it did on higher level employees. Despite all the uncertainty, the company says, long-term, it has never been more optimistic.
BAY: All right. Interesting, Steve. We'll be interested in hearing what they have to say tomorrow morning and see if that optimism -- if some numbers are attached to that optimism. Thanks.
Motorola, as we said, was a winner during regular trading today in what was a stellar session on Wall Street. But does today's rally have legs? Terry Keenan joins us now from the New York Stock Exchange.
So, Terry, investors were pinning a lot of their hopes on Motorola. So, what does that suggest about tomorrow?
TERRY KEENAN, CNN CORRESPONDENT: Yes, you know, it was a curious choice for inspiration, Willow, because even in good times Motorola has had a spotty record in terms of meeting Wall Street performance. Now that they have disappointed after two warnings, as Steve mentioned, it will be interesting to see how the stock holds up tomorrow morning, in the wake of that conference call. It is trading down about 40 cents in after hours trading after a nice rally today.
It's important, say traders, for Motorola to hold on to double digits, to continue to trade above $10 a share, where it hit on Friday amid those liquidity concerns. That might indicate that the market has factored in a lot of negative earnings news, first into Motorola and then into a lot of the other technology names.
BAY: Hey, Terry, the Dow broke above 10,000 for the first time in a month. What did traders say about that, did they consider that significant?
KEENAN: Not particularly. They really weren't breaking out the champagne here. I mean, the Dow has traded for two years in a pretty narrow range, between about 9,700 and 11,700. So, no real cheering when the Dow broke through 10,000. What traders would really like to see is continued follow through on this rally, and particularly follow through on the Nasdaq rally bringing that index back above 2,000 -- Willow.
BAY: All right, Terry. We'll check back in with you in the next half hour, thanks.
Ahead on MONEYLINE: The very latest on the standoff with China. Even the president is now calling it a stalemate. What hopes are there for the quick release of the crew.
But first: Is today's buying binge nothing more than a bear market rally? We'll ask Dick McCabe. That's next.
(COMMERCIAL BREAK)
BAY: The Dow powered back above 10000 today in a surge of buying. In fact, the Dow has vaulted over 700 points since its recent low, hit three weeks ago. For the Nasdaq, things have been far less heartening, even with today's 6 percent jump. There is no rebound yet to speak of.
But our next guest says that the lure of cheap stock prices and faith in Fed rate cuts could give the market a boost. Here with us now, Dick McCabe, chief market analyst at Merrill Lynch.
Dick, as always, welcome.
RICHARD MCCABE, MERRILL LYNCH: Hi, Willow.
BAY: So, how convincing was today's rally?
MCCABE: I think the rally today combined with the first pop we had last Thursday is really an encouraging sign. The important thing is not so much the fact that the Dow and the Nasdaq had big percentage gains, but that there was breadth to the rally. We had very strong advance/decline figures and upside/downside volume figures both days.
BAY: And as a technician, that's something that you like to see on day like today?
MCCABE: Right.
BAY: Is there today, combined with last Thursday -- you think there's a real change in psychology. How so?
MCCABE: Well, I think it's a change in the signs of buying interest coming into the market. We had a lot of two-day and three- days wonder rallies back in February and March. They had no staying power because they really had no great volume or breadth to them.
But I think today or last Thursday were a good change. There's a sign of buying interest finally coming back to the market. The key thing is that there's no special news to account for it. It kind of came out of the blue from an oversold condition. So, it looks more impressive when there's no great catalyst to drive it.
BAY: Now, should investors -- you know, we've had these snap back rallies before. Should investors be prepared for the Dow, for example, to retest its lows, as some Wall Street pros believe?
MCCABE: Well, this may not be a runaway, straight line advance. But I think it could last a month or two with pauses or hesitations along the way. I wouldn't be dismayed if we got a little pullback in the next few days, but I think we're going higher. I think the Dow could get up to the mid or high 10000s and the Nasdaq to the mid or maybe high 2000s before the spring rally is over.
BAY: And then what happens after that spring rally is over? What is the -- what is your outlook for the rest of the year?
MCCABE: Well, I think at that point the two markets, Nasdaq/technology on one hand and Dow/value on the other hand, may part company again. I think the tech stocks, after a very good rally in the spring, may fall back to do some kind of retesting at various times, perhaps, in the second half of the year to build a base for a bigger advance later.
BAY: Now, I'm curious on this Nasdaq spring rally, as you're calling it. Don't you think all this negative earnings news that we're about to be faced with, Motorola today getting us out of the gates, is going to have a dampening impact in any spring rally on the Nasdaq?
MCCABE: Well, I think a lot of this has been anticipated, not only by the preannouncement, but by many analysts turning more negative and kind of, in a sense, losing hope in the last month or so; many opinion downgrades, many earning estimate cuts.
So, I think perhaps, at least for this quarter's reports, the news is kind of behind us. We'll have to worry later in the spring about the next quarterly performance, but that's ahead of us.
BAY: OK, and you think -- given that you think that the old economy, the Dow is going to power ahead, that's a place investors should consider?
MCCABE: I think that's the best place. The long-term up trends are developing in the value-type stocks, the old economy stocks, as portrayed in the Dow Jones average, primarily.
BAY: Dick McCabe, as always, thanks for joining us.
MCCABE: Thank you, Willow.
BAY: Still to come, we go live to the White House for the latest on the standoff with China.
Plus, we'll take a closer look at Motorola's late report, and we'll check in with John Metaxas on a very big day for the Nasdaq -- John.
JOHN METAXAS, CNN CORRESPONDENT: Willow, an across-the-board, powerful rally for technology stocks; I'll have some of the movers when MONEYLINE returns.
(COMMERCIAL BREAK)
BAY: In today's corporate headlines, Prudential PLC taking legal action against AIG in the company's battle to take over American General. Prudential accuses AIG of jumping the gun, or making its rival bid for American General before filing with the SEC. AIG's stock offer of about $25 billion trumped an earlier bid from Prudential, and is widely expected to be the final victor.
Ford CEO Jacques Nasser received a hefty compensation package for 2000. Nasser's cash package of $9.3 million was a 13 percent increase from his 1999 salary and bonus. Ford investors, though, didn't fare as well in 2000. The stock sank more than 20 percent. Today, Ford edged lower, ending at $28.96.
Checking our MONEYLINE "Movers," Aetna plunged more than 6, that is 17 1/2 percent, after warning first quarter profits will be significantly lower than forecasts, and it may miss full-year targets as well. Aetna blames higher-than-expected medical costs.
Sensormatic Electronics also warning today. The security firm says earnings this quarter will be much as 70 percent below expectations. That stock off nearly 5 3/4.
And Edison International rallied nearly 2 1/2, or almost 30 percent. Late yesterday, the state of California agreed to pay more than $2.5 billion to buy Edison's transmission system. The state will also help Edison repay $3.5 billion in power bills. All that in an effort to keep the utility from filing for bankruptcy. Even with today's gains, Edison is off about 27 percent this year.
But today it was tech stocks that were the big winners. For the lowdown, we go to John Metaxas at the Nasdaq market site -- John.
METAXAS: Willow, over the last few months, the prevailing fact here at the Nasdaq has been lower technology earnings. But now it's beginning to dawn on investors that maybe those lower earnings are beginning to be factored into stocks.
We saw a powerful rally today, and as we look at the six-day chart, we are up three out of the last four session, in that time gaining some 13 percent. So, that the kind of action we haven't seen consistently since January.
Across the board, all the sectors were higher. The networkers up strongly. Cisco up 9 percent. A lot of short covering in the market today. Cisco traded very heavy volume, 111 million shares changing hands. Sun another big cap that surged, up 12 percent off its lows. yesterday Merrill Lynch came out today and said the stock is oversold.
Intel, for its part and the chips were the real story of the day. They shrugged off the Cypress warning, they shrugged off negative comments from Credit Suisse about the sector, and the chips rallied back above their old support level. Strong gains in the fiberoptic arena: Ciena up 25 percent; JDS Uniphase up 17 percent and Juniper Networks, a gain of 21 percent ahead of their report on Thursday.
Now, was this a bear market rally or the beginning of an up trend? The earnings reports that we're going to get over the next few weeks are crucial. But even in the case of Motorola, when news is bad, this market is beginning to react better to bad news and that's crucial -- Willow.
BAY: Interesting sign. John Metaxas, thank you.
For more on the outlook for tech stocks, we are joined from Chicago by Erik Gustafson, fund manager at Stein Roe & Farnham in tonight's MONEYLINE "Tech Watch."
Erik, welcome.
ERIK GUSTAFSON, STEIN ROE & FARNHAM: Hi, Willow. How are you?
BAY: Good. Now, we're hearing this, we've heard this already several times this evening, the market seems to be responding fairly positively to bad news. Do you think the bad news is priced in here?
GUSTAFSON: Well, I think we're close, Willow. We'll have to see what Motorola's bad news tonight does to the stock and the technology sector in general tomorrow. I think a lot of it is baked in.
Clearly, these stocks, down 60 to 90 percent in some cases, have taken a lot of heat. And I think a lot of the bad news is baked in, although we have to digest the actual news, and tomorrow will be first test.
BAY: And when you look at the Motorola numbers, what's your take? GUSTAFSON: I think Motorola is clearly emblematic of a technology environment that's very difficult. We had Alan Greenspan and company really bring the economy to the brink of recession, with way-too aggressive interest rate hikes and poor monetary policy. And I think Motorola felt the brunt of that, and I think a lot of technology companies had.
You heard a lot CEOs say: "Our business stopped. Our order clarity is not there. Our visibility is zero." So I think you have a problem in that sector that's going to take a more vibrant economy in order to pick up.
BAY: One of the tech bellwethers we'll also be hearing from this week is Yahoo!. Will you be looking for signs of progress there?
GUSTAFSON: I think Yahoo! is an interesting franchise. It's one of really only two left on the Net. Yahoo! and AOL are the two winners there. Clearly, both have been damaged. AOL did a great job in acquiring Time Warner, but I think Yahoo!'s numbers will be better than some people think, and I think Yahoo! is an interesting story here.
BAY: What are you doing in the midst of all of this? Last time you joined us about a month ago, you had gotten much more defensive in terms of your top holdings. Are you still?
GUSTAFSON: We're still are, Willow. We're still quite defensive, relative to where we were a year and a half ago. I think this market still has some digesting of tough earnings to do on the tech side. but ex-tech, I think there's a lot of interesting areas.
Media companies like AOL and Liberty Media look attractive. Some of the utility players look very interesting. I think retailers are poised to rebound, especially if Alan Greenspan is right, and our economy is not going to go into recession and we do rebound here. That's a case you could look for some areas that aren't so tech- specific.
BAY: All outside of tech, as you point out. Erik Gustafson, thanks.
GUSTAFSON: Always a pleasure. Thank you, Willow.
BAY: Coming up, a call for patience in the standoff over the spy plane detained by China. We will go live to the White House for the latest.
(COMMERCIAL BREAK)
BAY: The standoff over the U.S. flight crew detained for 10 days in China may not end soon, according to President Bush, who today described efforts to free the crew as at a stalemate. And late this afternoon, Chinese president Jiang Zemin, traveling in Uruguay, repeated earlier calls for a U.S. apology, saying he trusts the ability of the two countries to end the impasse. Major Garrett has the latest from the White House -- Major. MAJOR GARRETT, CNN CORRESPONDENT: Good evening, Willow. Well, yes, the White House looked at that comment from President Jiang as a slightly encouraging sign, particularly the emphasis he placed on the ability of both countries to resolve this issue. The White House has taken some heart in the fact that for the first time in the Chinese official press, there is a dialogue about the fact that the U.S. and the Chinese are talking about a way to resolve that. White House does believe that is a slightly positive development.
But in a meeting with King Abdullah of Jordan here at the White House, the president did say that diplomacy requires patience.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Diplomacy sometimes takes a little longer than people would like. I urge the Chinese to bring resolution to this issue. It's time for our people to come home.
(END VIDEO CLIP)
GARRETT: Now, one prominent American, the Reverend Jesse Jackson, offered his services to the White House to act as an intermediary, along with other religious leaders, to travel to China to possibly act as a bridge between the two countries, to bring all of the 24 crew members home. The president did nothing to discourage a Jackson trip.
(BEGIN VIDEO CLIP)
BUSH: There's a lot of people that are anxious to -- for this situation to end. I appreciate the goodwill of a lot of Americans that are concerned about our folks in Hainan Island. This administration is doing everything we can to end the stalemate in an efficient way. We're making the right decisions to bring the solution to an end.
(END VIDEO CLIP)
GARRETT: Now, Willow, there are no conversations between the U.S. and Chinese today. No formal negotiations, but the administration says that's not necessarily a bad sign. The feeling here at the White House is that there is a tremendous debate going on inside China about what the next step will be. The Chinese are reviewing a fourth draft of a letter meant to resolve this entire impasse. The White House is betting that its patience will soon pay off -- Willow.
BAY: Major Garrett, reporting from the White House. Thank you.
Coming up in the next half-hour of MONEYLINE, more on an electric day on Wall Street. The Dow retakes 10,000, and the Nasdaq surges 6 percent.
So has the bear market lost its growl? A turnaround would have to overcome a rising threat to high-tech sales, as a slew of failed dot-coms dump all their used equipment.
Plus, another market in an uproar, leather prices feel the pinch of an overseas crisis.
(COMMERCIAL BREAK)
BAY: In tonight's headlines, a buying frenzy on Wall Street. The Dow climbs back above the 10,000 mark, while the Nasdaq jumps more than 6 percent. Motorola posts a wider-than-expected loss, despite lowering estimates twice this quarter. Revenues also come up short, falling 11 percent from a year ago. Plus, Mad Cow and hoof-and-mouth disease fallout spreads beyond beef. We'll look at the rising prices of leather.
But first, a broad-based rally on Wall Street sends the Dow above the 10,000 mark, and the Nasdaq up a whopping six percent. Several sectors fueled the markets' strength, including Internet stocks, biotechs and financial stocks.
The Dow bolted higher out of the gate, and stayed the course for the session, finishing the day up 257 points. The majority of Dow components finished in the green; among them, 3M, IBM, Boeing, Citigroup, and Dupont.
The Nasdaq finished in the plus column for the second day in a row, hitting its third largest percentage gain this year. The index climbed 106 points. Large cap techs led stocks higher, including Ciena, PMC-Sierra, Juniper Networks, Veritas Software, and BEA Systems. The broader markets had a solid day as well, finishing up 30 points at 1168.
Today's rally is in sharp contrast to the market selloff just two sessions ago. In fact, triple-digit gains and losses have become par for the course on Wall Street these days. Greg Clarkin has been looking into this.
GREG CLARKIN, CNN CORRESPONDENT: And Willow, these have become an all too common occurrence for too many investors. They're the wild intraday swings, but what do they really mean for the markets? Well, some say they're just a fact of life in this nervous market environment.
(BEGIN VIDEOTAPE)
CLARKIN (voice-over): They're enough to turn even the most confident investor into a ball of nerves. Market swings, sharp rallies that turn into steep declines in the blink of an eye. Pros say there's a variety of reasons for those gut-wrenching moves.
PHIL ROTH, MORGAN STANLEY DEAN WITTER: Part of the reason for the volatility was liquidation by the public; we had a fair amount of mutual fund redemptions. And when the public redeems funds, portfolio managers immediately have to sell the stock, because they have very little cash. So, that tended to produce a more rapid decline.
CLARKIN: And the rallies have been built in part by those shorting stocks as they scramble to cover their positions. Then there are those trying to time the bottom. Traders and investors piling into the markets when it seems as if the worst is over.
PATRICK BOYLE, CREDIT SUISSE FIRST BOSTON: If you bought the dip anytime in the last 18 months before last summer, you made money. Now people have bought that dip 10 or 15 different times and have gotten burned, so the market is very jittery.
CLARKIN: Jittery indeed. There have already been eight sessions this year when the Dow has swung 3 percent or more in one day. There are 18 for all of last year and just two the year before. It's a similar story for the Nasdaq: 51 times it's experience a 3 percent or better swing so far this year. There were 140 days like that last year and two in 1999. Some market watchers say the public has learned to accept the swings.
UNIDENTIFIED MALE: Investors recognize we're in a dynamic market that changes very, very quickly. It's not the volatility is not having psychological impact it would have had three or five years ago.
(END VIDEOTAPE)
CLARKIN: One positive, some say heaviest volume and sharpest intraday swings generally come in turning points in the market. But many caution with investors uneasy it really doesn't take much to take the wind out of any rally.
BAY: Uneasy is the operative word. Are you detecting a real sentiment change?
CLARKIN: At least in the last couple of days, your sensing more optimism than pessimism. Again, if there's a earnings disappointment that could come around.
BAY: It will interesting to see what happens as this negative news earnings starts to come in a bit of a flood if not a trickle.
CLARKIN: Exactly.
BAY: Greg Clarkin, thanks. So, as Greg said, today's rally could signal the worst is over. But another possibility, the huge run-up is being driven by short sellers covering their positions. Terry Keenan joins us with that story in tonight's behind the numbers -- Terry.
TERRY KEENAN, CNN CORRESPONDENT: Well, Willow, while most investors have certainly been burned by the market in recent months, some people have been enjoying and profiting from the meltdown. Those people are the short sellers, the bears who make big bets that a company's stock is headed lower. According to the latest numbers, short interest, that is the number of shares sold short here at the New York Stock Exchange, is at a record 5 billion, up from 4.8 billion in February, and up an impressive 18 percent since the market peaked last March.
And the short sellers have been rewarded for their negative bets. So far this year, money managers who have been short this market have seen an average return of 17 percent, according to Harry Strunk, a Palm Beach money manager who charts these trends. Compare that with an 11.5 percent decline in the S&P 500. It's good news for the shorts, but also potentially good news for millions of investors still long or invested in this market, that's because stocks that have been shorted or borrowed must eventually be bought back, and that can ignite a fire under the market. Investor Gary Kaminsky, for one, says it's already starting to happen.
(BEGIN VIDEO CLIP)
GARY KAMINSKY, INVESTOR: Clearly, there is a lot of traders, short term players, that are short these stocks. They'd ridden them a long way and they try not to cover until they think it's at the bottom. That's how you find the bottom in these names.
(END VIDEO CLIP)
KEENAN: The stocks with the biggest short positions ostensibly stand to get the most "juice" as short sellers buy back their shares. Among the biggest short positions here at the Big Board: Deutsche Telecom, Sprint PCS, AOL Time Warner -- CNN's parent -- Global Crossing, and AT&T.
Each of these stocks was up nicely today, Global Crossing up 14 percent amid what many believe was a rush to cover. Such moves may also be a good sign for the market overall, many believe the short sellers will have to throw in the towel before a new leg up in the market can begin. So, keep an eye on those shorts, Willow.
BAY: All right, Terry. We will. Terry Keenan, thanks.
After warning Wall Street more than once, Motorola still dismayed investors today, posting a loss of 9 cents per share last quarter. The loss was larger than Wall Street was looking for, but precisely what my next guest predicted. To review Motorola's dismal numbers, I'm joined by Tim Luke, analyst at Lehman Brothers, live from his firm's headquarters.
Welcome, Tim. Why were you not surprised by this? Why was this just what you were expecting.
TIM LUKE, LEHMAN BROTHERS: I think the general trends were the key areas of weakness condition with hand set area and with sales down over 30 percent and orders down as well. And semiconductor continue to show weakness. In general, these numbers were in terms of the loss we're looking for nine cent loss and they did a nine cent loss. In terms of outlook, I think it's on the margin, more cautious than we have previously expected.
BAY: And of course, the outlook is something everybody is going to interested in hearing tomorrow, correct?
LUKE: Absolutely. I think that the things that people will focus on is the fact that hand set business showed negative operating margins of about 18 percent. That's quite a heavy loss; going forward as well.
Also going forward, when you look at the semiconductor business and the outlook, not just for Motorola but other semiconductor players, with orders down almost 50 percent, down 47 percent year over year. That's a pretty big drop.
Also, the commentary in the press release from the CEO, Chris Galvin, suggesting that the downturn in the U.S. continues and we're only beginning to see that spill over to the rest of the world. That's pretty cautious too.
BAY: And did you get the sense, looking over these numbers, that that spill off was hitting their global business as well?
LUKE: Absolutely. As they suggested, we're at the beginning to see that recession that is present in the U.S. spill over into the rest of the world.
BAY: There were some real concerns about their balance sheet, they were, of course, forced to deny rumors they were facing a cash crunch last week. In the report, Mr. Galvin did say that cash flow was positive for Q1 and it's anticipated to be positive for the full year. How much are you reassured by that?
LUKE: That's certainly a positive coming from this release that they, despite challenges in terms of business and some of the fundamental and in terms of sales and orders, the balance sheets seems better than we had thought. The receivables and inventories, they look to have improved the situation there. And it does seem that they'll end up for the year (UNINTELLIGIBLE) positive when you include the sales of assets, but more details on the conference calls. They're not out of the woods yet.
BAY: They've already announced 22,000 layoffs. Have we seen the impact of that yet in terms of this report?
LUKE: I think Motorola will move fairly aggressively going forward to reduce its cost in order to help its cash flow and that may mean unfortunately further redundancies. That's will be a focus for them to improve their cash flow and balance sheet for the long term.
BAY: Now, when you say further redundancies, does that mean that Wall Street should be prepared for additional layoff or is that something Wall Street would welcome if it helps get their cash in line?
LUKE: I think that it is signaling that we may well see further layoffs going forward, and I think that if management is being seen to be aggressive about cutting costs, aggressive about improving its balance sheet and aggressive about improving its cash flow, that's going to be received positively by some investors.
Overall though, when you look at this report, I don't think it does much to change investor perceptions. I think that the results was somewhat probably weaker than expected, and we continue to expect the stock to trade in a range around here with little to really spike it upward.
BAY: OK, Tim Luke, thank you for joining us tonight.
Coming up on MONEYLINE: struggling dot-coms selling off gear at rock-bottom prices. Does it spell trouble for other tech firms?
And sticker shock on the leather racks. Prices are soaring, and the reason? Well, it may surprise you. That story, when MONEYLINE continues.
(COMMERCIAL BREAK)
BAY: As tech firms tally up a dismal first quarter, many are facing a frustrating twist, competing with themselves. When the Internet exploded, dot-coms voraciously purchased cutting-edge technology to run their companies. But as these businesses go belly- up, that equipment is finding its way back on the market. Bruce Francis has the story in tonight's "MONEYLINE Focus."
(BEGIN VIDEOTAPE)
BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): On April 18th, a day before Sun releases its first-quarter earnings, you can bid on this server on DoveBid, a company that specializes in liquidations. Also up for sale: this Cisco router. Both are part of an auction of 621 items from failed dot-coms, like riffage.com, tradepayment.com and zatso.com. The savings can be substantial.
ROSS DOVE, CEO, DOVEBID: There are significant savings. Keep in mind, an auction is a competitive environment, and the asset sells to the high bidder. But even in a competitive environment in today's economy, you can often save up to 50 percent off the new cost, and get a perfectly good working unit that is less than a year old.
FRANCIS: And that can be bad news for the original manufacturers. Companies like Cisco and Sun Microsystems prospered by becoming the arms merchants to the Internet revolution.
But as some of their customers have failed, sales of sometimes "like new" equipment are sopping up slackening demand. No one knows exactly how much equipment is out there, but more is coming, according to Merrill Lynch's Tom Kraemer, who has been warning of the problem since last December.
THOMAS KRAEMER, MERRILL LYNCH: Liquidations are just beginning. I would guess that we will see peaks around probably late summer, and I would guess that is when you will see the maximum amount of equipment there.
FRANCIS: With the economy soft and tech budgets tight, the appeal of used or refurbished equipment is strong. For example, a Cisco series 7500 router, which cost $150,000 new, sells for $11,000 refurbished. But at an auction earlier this quarter, it fetched less than $2,000.
Some companies, like Cisco, have been trying to buy up used equipment, recondition it, and sell it through dealers as refurbished.
(END VIDEOTAPE)
FRANCIS: Sun Microsystems, so far, is not trying to buy up used servers, but Merrill's Kraemer says that the issue shouldn't be overblown. He was more concerned on other issues on Sun, like the company's current microprocessor transition.
BAY: So, Bruce, the bottom line: how big an issue is this for the tech sector?
FRANCIS: It's not going to eat away a lot of earnings, or take away a lot of customers, but it could restrain their pricing going forward, and these companies don't need another negative.
BAY: Exactly, they don't need another problem. Bruce Francis, thanks.
Straight ahead on MONEYLINE: one sector is set to reap big gains from the California power crisis. That story, next.
(COMMERCIAL BREAK)
BAY: In tonight's "Sector Focus": aluminum stocks and the California energy crisis. A government agency that sells powers in the Pacific Northwest asked aluminum companies to scale back production for the next two years to conserve energy. It will also cause a major drop in output. In fact, analysts believe the move will lead to 5 percent drop in global aluminum supply.
Taking a look at the market reaction: the stock surged on bets that lower supply means higher prices for aluminum. And earlier today on CNNFN, the CEO of Kaiser talked about the broader impact of the production cuts. Not on investors, but on workers.
(BEGIN VIDEO CLIP)
RAYMOND MILCHOVICH, CEO, KAISER ALUMINUM: We have two aluminum smelters in the Pacific Northwest, both of which are shut down at this point in time. At full operation, those smelters would employ approximately 950 people, but what Bonneville is proposing currently is, for a period up to two years, those smelters would be completely shut down, not producing any product, and not employing basically any people.
(END VIDEO CLIP)
BAY: In fact, according to the aluminum companies, halting production in the Pacific Northwest would force as many as 6,000 layoffs.
Coming up: a crisis in livestock being felt in the fashion industry, why mad cow and hoof-and-mouth disease has leather makers quaking in their boots.
(COMMERCIAL BREAK) BAY: The United States has been spared the outbreaks of foot- and-mouth disease and mad cow disease that have ravaged livestock in Europe. But the crisis overseas is taking a toll on one industry this side of the Atlantic.
Susan Lisovicz has the story of a supply crunch in a very hot commodity.
(BEGIN VIDEOTAPE)
SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): The 74-year-old Hermes Leather Corporation says it's never seen such a big increase in the price of English lambskins, a direct result of the mad cow and hoof-and-mouth epidemics that have led to the widespread slaughter of livestock in England and elsewhere.
ROBERT KATZ, HERMES LEATHER CORPORATION: The lambskin price of 11 percent is a very steep increase, because I can tell you it translates to 35 cents a square foot.
LISOVICZ: And leather prices are already higher due to a huge increase in demand. Last year, retail sales of leather apparel goods skyrocketed more than 70 percent to $4.2 billion from $2 1/2 billion the year before. Leather products account for 85 percent of Andrew Marc's business, and he says all suppliers are rising their prices.
ANDREW MARC SCHWARTZ, CEO ANDREW MARC: The mad cow, even though it's a very -- like an isolated problem, it has affected the worldwide amount of supply, and so what happened is now everybody is jumping on the bandwagon: Whether it's furniture leather, whether it's garment leather or whether it's like leather like for cars, everything is moving up.
LISOVICZ: The impact can be felt at Sofa So Good, where a leather couch can run as high as $11,000. The owner says her supplier has already pushed through a double-digit increase. She was fearful it would be even higher.
CRISTINA REVILLA, SOFA SO GOOD: He did a 10 percent increase. It's very good because I only have one supplier.
LISOVICZ: But consumers for the most part won't feel the full impact of the price hikes until next year.
PETER BRAUNSTEIN, "WOMEN'S WEAR DAILY": The demand boost in prices, demand-based boost, combined with the scarcity problem caused by the epidemics could impact leather prices. It already is, but a lot of consumers won't be feeling that until 2002.
LISOVICZ: Leather goods makers are hoping the mad cow and hoof and mouth epidemics will be over long before then.
Susan Lisovicz, CNN Financial News, New York.
(END VIDEOTAPE) BAY: Up next, we'll talk about the sizzling day on Wall Street in a roundtable of our reporters. Plus "Ahead of the Curve." Stay with us.
(COMMERCIAL BREAK)
BAY: Taking a look at some of what could move the markets tomorrow: Keep an eye on shares of Motorola. After today's closing bell, the company reported a first-quarter loss of 9 cents a share, worse than already lowered estimates. That pushed the stock down 7 percent in after-hours trading.
More earnings reports after the bell tomorrow from Yahoo! It is expected to break even. Also out tomorrow: Redback Networks, on tap to report a loss of 15 cents per share.
To stay a step ahead of the markets tune into "AHEAD OF THE CURVE" on 5:00 a.m. Eastern on CNN.
Another powerful rally on Wall Street. We've seen lots of these in an otherwise dismal year for stocks. For the last word on today's action, Terry Keenan at the New York Stock Exchange, Allan Chernoff outside the Nasdaq, and Greg Clarkin here in the studio with me.
Greg, let me start with you. You mentioned some optimism, a change in sentiment. Just what are you hearing and just what do you suspect is behind it?
CLARKIN: Well, we see a lot of folks, Willow, looking toward next week. They expect volume to taper off as this week progresses toward the Good Friday holiday. The market's closed. And then next week with the earnings reports will be real critical. But at this moment, we're sensing a lot optimism out there. Folks...
BAY: What are they saying?
CLARKIN: Well, they feel maybe a bottom has been set. But again, it's kind of cautious optimism. You don't want to jump the gun. You want to see if anybody comes out with an earnings report that is particularly disappointing. At this point, a lot of folks believe that already the preannouncements have taken, you know, the stocks down to levels where they should be at the moment.
BAY: Terry, what's your take on this? Is this the start of anything or just more volatility?
KEENAN: I have to say if there's any optimism, it is extremely cautious. As Greg pointed out earlier in the program, we have had those 3 percent upswings: January 3rd, a couple of weeks ago and last Thursday. But there's never been a follow-through on that of any -- of any duration at all. And we've seen that, the pattern, since last September.
So we'll need some follow-through on this tomorrow, and with that Motorola news, we may not get it. Some of the tech stocks losing some steam in after-hours trading. Of course, 8:00 a.m. is when we get the Motorola conference call. That's what everyone will be waiting for.
BAY: And Allan, you know, what are you hearing? How do you weigh in? Skepticism, opticism -- optimism? Sorry.
CHERNOFF: Well, Willow, quite a few of the people I spoke with were quite skeptical of the rally today. A lot of people pointing out that we're not likely to get very good news out of corporate America for quite some time. The Street really is not looking for any improvement at all in technology earnings until the end of the year or even the beginning of next year. So, that certainly doesn't bode well.
BAY: Greg, getting back, back to this avalanche, it's one thing to say the bad news is priced in. It's another thing to weather a trickle or perhaps an avalanche of negative earnings news. You know, why do folks think the market is going to be able to shake this off?
CLARKIN: Well, not so much that. I think there's a lot of wishful thinking, and when you speak to people now, you know, they're hoping maybe this is a bottom. But then again, you know, you've got to remember, a lot of these folks were trying to time bottoms. They've been burned, so they are extremely, extremely cautious. But at this point, they're hoping that with the actual earnings reports, that maybe some of these won't be as bad as expected, or if they're bad, they already were expected to be that bad, and that possibly this could set some kind of bottom for, you know, for the future here.
BAY: Terry, what would it take to erase some of the skepticism, for you to trust a rally like today's?
KEENAN: I think what people would like to see is the final capitulation by small investors, huge mutual fund redemptions that would really wash out any positive sentiment that may still be left in this market, and maybe then we put in a real bottom. The other thing people would like to see is for all of us to stop talking about bottoms and putting in these bottoms...
(LAUGHTER)
... and then maybe we can progress higher from here.
BAY: Allan Chernoff, you'd like to use the word "bottom" perhaps in a quick sentence before it's banned from our air?
CHERNOFF: Very -- you know, it's very hard to pick a bottom, and people on The Street say it's more of a process than one exact day.
BAY: All right, the bottom word -- we won't use it -- Terry Keenan, Allan Chernoff outside the Nasdaq, and Greg Clarkin here in the studio, thank you as always.
That is MONEYLINE for this Tuesday. I'm Willow Bay. Good night from New York. "CROSSFIRE" is next.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
|
|
![[CNN.com]](http://i.cnn.net/cnn/images/newsnet/cnnlogo.gray.gif){kind=small}
TOP STORIES![[SI.com]](http://i.cnn.net/cnn/images/main/si.logo.gif){kind=logo}
SPORTS
All Scoreboards
![[CNN Money]](http://i.cnn.net/cnn/images/main/fn.logo.newsnet.gif){kind=logo}
(