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Lou Dobbs Moneyline

Dow Rises 31.62 to 10,158.56; Nasdaq Falls 51.86 to 1,909.57; Cisco Issues Profit Warning, Will Lay Off 8,500 Workers

Aired April 16, 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: Is the worst over? Cisco Systems says no. This is MONEYLINE for April 16, 2001.

Cisco issues another profit warning, saying business has never been more challenging. We'll talk to CEO John Chambers. The news caps a disappointing day for the Nasdaq, losing ground after one of its best weeks ever. How it will fare tomorrow now that Cisco has warned?

And a special look at dreams of early retirement dashed when tried-and-true stocks collapse.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I went to bed one day, it was $30 a share. I woke up, and it was $8 a share.

(END VIDEO CLIP)

ANNOUNCER: This is MONEYLINE.

BAY: Hello, everyone, and welcome to MONEYLINE. We begin tonight with yet another profit warning from what was briefly the world's most valuable company: Cisco Systems. After the bell, the tech bellwether said that quarterly earnings will fall well short of expectations, with revenue plunging from the previous three months.

Taking a look at the market reaction: the stock is down more than $1 in late trading. It is a colossal 78 percent from the 52-week high. Now, we will have complete coverage of Cisco's warning, the market reaction, and the day's other big news with Terry Keenan, Allan Chernoff.

But we'll begin with Steve Young who's been poring over the Cisco news since it was released -- Steve.

STEVE YOUNG, CNN CORRESPONDENT: Willow, John Chambers has been pessimistic for time, but today he raised pessimism to a whole new level.

(BEGIN VIDEOTAPE)

YOUNG (voice-over): The projected sales shortfall announced by Cisco is stunning. Analysts had been expecting a 12 percent slowdown, but the Internet networking specialist now says revenue will be off about 30 percent from the previous quarter.

BOB WALBERG, BRIEFING.COM: I think that, you know, that big thud you heard was the other shoe dropping, and that was the Cisco earnings warning after the close. This was an abysmal warning.

YOUNG: In a statement, CEO John Chambers said: "This may be the fastest any industry our size has ever decelerated, which has required us to make difficult business decisions at an unprecedented speed."

Those steps will include the layoff of 8,500 workers, a somewhat larger number than the company disclosed early last month. Cisco will take $1.2 billion charge as it consolidates manufacturing facilities, and a charge for excess inventory twice as large. Cisco says after that, it will still be stuck with $1.6 billion in excess inventory.

ARNIE BERMAN, WIT SOUNDVIEW: I believe Cisco signed a lot of contracts when components were tighter that essentially put them in a position where they were forced to take on these parts by the nature of the contracts they previously signed.

YOUNG: The company says it will be profitable in a quarter, but expects per share earnings only in the low single digit range. Extending the gloom into the fourth fiscal quarter, Cisco says it expects the revenue will range from flat to down, 10 percent from the quarter it's about to report.

The CEO likened business conditions to a 100-year flood. Said Cisco didn't have an economic model for conditions this bad, and added: "The lesson is, a 100-year flood could occur in your lifetime."

(END VIDEOTAPE)

YOUNG: John Chambers says we remain very confident in our long- term growth opportunities. He says the company's strategy positions it to lead the industry, but the problems just grow worse -- Willow.

BAY: Steve, as to those problems, did Chambers or anyone at Cisco indicate which businesses are holding back on the spending?

YOUNG: Yes, on the conference call, Willow, they indicated that 70 percent of their excess stuff that they're hanging on to now, stuck with, is Internet, and data, and telecom providers. The other 30 percent: corporations for their internal network use.

BAY: All right, Steve. Steve Young reporting, thanks.

And later on MONEYLINE, we'll talk live with Cisco CEO John Chambers.

Cisco's warning was a disturbing end to a disappointing day for tech investors. The Nasdaq snapping a remarkable winning streak. The index lost 51 points, or more than 2 1/2 percent to end at 1,909. The decline followed four straight days of gains that had sent the Nasdaq up 14 percent. Better performances today for the Dow, which spent most of the session in the red before turning around and ending up 31 points to end at 10,158. That wasn't enough to put the S&P in the black, however. The index closed down nearly 4 points, at 1,179.

Today's big losers were last week's winners: chip stocks, the debate over the industry flaring up again, this time after Morgan Stanley issued negative comments. Intel, AMD, Broadcom, Analog Devices, Micron Technology, all hit hard.

Investors have been consumed with profit news over the past week, but today they had some deal-making to distract them. First Union, which has struggled in the past with big acquisitions, struck an agreement with Wachovia to create one of the biggest banks in the nation. First Union will pay about $13 billion in stock. First Union fell 72 cents to $31.20, while Wachovia gained nearly $2 to close just over 62.

But Allan Chernoff is here to tell us why the math doesn't quite work out -- Allan.

ALLAN CHERNOFF, CNN FINANCIAL NEWS CORRESPONDENT: Well, Willow, First Union and Wachovia are North Carolina neighbors and competitors, and the logic behind the deal brings the two together to maximize cost savings.

(BEGIN VIDEOTAPE)

CHERNOFF (voice-over): The combination of First Union and Wachovia would dominate the Atlantic coast. It would create the fourth largest bank in the nation, with $324 billion in assets, 19 million customers and 2,900 branches. Both banks declined interview request, instead providing this pre-packaged videotape.

UNIDENTIFIED MALE: The new Wachovia is the new model in super- regional banking. We're going to have a fabulous corporate bank.

CHERNOFF: Though Wachovia is much smaller, its name will go on the new bank. Wachovia's chief Bud Baker will be chairman of the new company, First Union's chief Ken Thompson will run the bank as CEO and president.

The driving force for the deal: an opportunity to slash expenses since the banks operate in the same territory. The three-year cost- cutting program calls for 7,000 job cuts, half from attrition, 250 to 300 branch closings, and $890 million in annual savings.

Some customers are worried.

UNIDENTIFIED MALE: I think it is going to create this larger and larger monopoly. And when you have that, you have no competition, so they can pretty much do what they want then.

CHERNOFF: First Union has a poor track record in acquisition, having paid dearly for CoreStates and The Money Store, then slashing expense and angering customers with poor service. Last summer, First Union took a huge $2.9 billion charge against earnings as part of the effort to clean up its problems.

UNIDENTIFIED FEMALE: Given the background of these two companies and the issues that they've had, and the stigma, if you will, that's on First Union in terms of acquisitions, is First Union ready to do this deal?

CHERNOFF: First Union says it has learned its lesson, intending to make sure it does not alienate customers.

UNIDENTIFIED MALE: We're really going to take our time in integration to make sure our customers are taken care of.

(END VIDEOTAPE)

CHERNOFF: Right now, the deal is actually a tape under, that's because First Union's stock took a hit today, and the Wachovia shareholders would be paid in First Union shares, and right now the amount it all adds up to is not quite as much as what Wachovia closed at today. And so, there's speculation that maybe another bank might step into the bidding, the names being thrown around were both SunTrust and Wells Fargo. Neither bank had any comment -- Willow.

BAY: Interesting, Allan. Thank you.

Both First Union and Wachovia released quarterly results today, along with the merger news, and they were less than stellar. First Union reported that profits fell more than 25 percent, but that was still in line with expectations. Profits fell 5 percent at Wachovia from a year ago, topping expectations that had already been lowered.

A similar story over at financial giant Citigroup, which posted a 7 percent decline in profits. Checking on Citigroup's stock: it fell fractionally today, and it's been struggling this year despite three big cuts in interest rates.

Citigroup was one of more than a dozen blue chip losers today, but the rest of the Dow 30 managed to put the index in the plus column. But what about tomorrow, now that Cisco, which trades on the Nasdaq, has warned about profits.

Let's go to Terry Keenan at the New York Stock Exchange. So, Terry, how do you think the Cisco news will impact trading there tomorrow?

TERRY KEENAN, CNN CORRESPONDENT: Well, Willow, you can probably expect some collateral damage from that Cisco bombshell. Today, a rather quiet day of trading after the Easter holiday. We only had 900 million shares trading here.

A lot of focus tomorrow will be on Intel's numbers. They come out after the bell. Intel, of course, trades on the Nasdaq, but it is a Dow component. Today, several analysts coming out with negative comments about Intel, Mark Edelstone at Morgan Stanley Dean Witter cutting his earnings estimates by 25 percent for the full year. Most analysts expect that Intel will report its numbers in line with lower estimates for the first quarter when it reports tomorrow, but any miss there could really send this market into a freefall -- Willow.

BAY: And Terry, when you look at, you know, earnings season under way, what's the talk there on the floor? What are folks expecting beyond the Intel news?

KEENAN: I mean, the expectations, of course, are very negative. First Call is looking for 9 percent decline in profits this quarter. But Sam Stovall over at S&P says those numbers could be even worse than expected.

As you just mentioned, Citigroup, having 7 percent decline in earnings, about in line with the rest of the market. But once we see these big declines in tech earnings -- Sam Stovall, for one thing, says we can see a 16 percent year-over-year decline in profits -- Willow.

BAY: All right, Terry Keenan at the Big Board. We'll check back with you later. Thanks.

Still to come on MONEYLINE: the U.S. flight crew may be back home, but the plane remains grounded in China. The latest from Washington on an upcoming meeting to iron out damaged relations.

And President Bush once again pushes for his tax cut plan. We'll look at what it could mean for small businesses.

Plus, we'll hear from Cisco boss John Chambers. And we will check the after-hours reaction for Cisco, after Cisco Systems issued a grim outlook on profits.

(COMMERCIAL BREAK)

BAY: The U.S. flight crew may be back, but plenty of friction remains between Washington and Beijing. The White House is sending a delegation to China later this week. Senior White House correspondent John King has more on what's gearing up to be a critical airing of differences over the spy plane accident -- John.

JOHN KING, CNN CORRESPONDENT: A critical airing, Willow, in CNN is told by senior administration officials that at that meeting Wednesday in Beijing, the 8 member U.S. delegation will put China on notice that the U.S. plans to resume those surveillance flights in the very near future. No firm date will be given to the Chinese for security reasons.

But we're told the U.S. side will make clear that it expects Beijing to order pilots to back off and not fly so close to those U.S. surveillance flights. In the words of one U.S. senior official, this meeting a "taking of the temperatures."

And the U.S. delegation enters the talks with four clear goals.

Number one, to make clear that the U.S. believes China is to blame for this collision.

Number two, discuss ways to avoid such incidents in the future. "Ask tough questions" about what the U.S. views as the dangerous tactics employed in the past and this particular episode.

Finally, the U.S. will seek permission to travel to Hainan Island, a repair crew, to repair and retrieve that U.S. EP surveillance plane.

Now, this meeting of course taking place amid of wide ranging debate in Washington within the administration and Congress as to whether there should be trade sanctions against China or perhaps, an end to military to military exchanges. Some way to the administration to voice its displeasure of Beijing's handling of the situation.

The White House says, none of the issues will be discussed in this one meeting on Wednesday, but the administration also making clear the tone and the tenor from the Chinese side could go a long way in effecting the domestic political debate here in Washington.

(BEGIN VIDEO CLIP)

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: During that meeting, I think you could expect a forthright conversations about these flights and about what took place. And as the president said in the Rose Garden Thursday, both nations have to make a determined choice about the future of our relations. And the first evidence of those determined choices will come on that meeting on Wednesday and the president wants to hear what the Chinese have to say.

(END VIDEO CLIP)

KING: As the U.S. prepare to resume the surveillance flight, some debate here in Washington as to whether the Pentagon should provide armed jet fighter escorts for those surveillance planes.

But Pentagon and other administration sources telling CNN, they discount that notion. They think, number one, the Chinese will view such a step in peacetime as highly provocative and they also think, having jet fighters in the sky will increase the risk of confrontation and perhaps another accident -- Willow.

BAY: John King reporting from the White House, thanks.

Coming up, what might the Cisco warning mean for the markets tomorrow? We'll ask Dennis McKechnie if investors can take in stride. He's next, on MONEYLINE.

(COMMERCIAL BREAK)

BAY: In tonight's MONEYLINE movers, Genentech shares up more than two. Investors, finally able to react to the biotech's earnings issued late last week, sent shares higher, profits vaulted 20 percent, on strong sales of two chemotherapy drugs.

United Therapeutics falling more than 3. The Food and Drug Administration asking for 90 more days to review the application for its hypertension treatment. And Handspring shares losing more than 1 1/2, just ahead of the holiday weekend. The hand-held computing company warned, competition from Palm would hurt its bottom line.

Handspring stock has done a giant slalom this year, it's down almost 70 percent.

We've gotten a series of troubling messages from tech sector, most recently, in tonight's warning from Cisco. For some perspective, we're joined by Dennis McKechnie, portfolio manager in Pimco.

Dennis, welcome back.

DENNIS MCKECHNIE, PIMCO: Thank you.

BAY: What's your reaction to the Cisco warning. Obviously, a warning was not necessarily a surprise, but what about one of this magnitude?

MCKECHNIE: The magnitude is quite large, they talk about 30 percent down which is quite large. It's not a complete shock, though, because suppliers have been saying that for the last three or four weeks. Cypress, a few weeks back announced that they had virtually no orders in their March period.

Broadcom, AMCC have been saying similar type things. Customers have been saying things like that, but they had been cutting back spending. So, it's not a complete shock. In fact, in some ways it might be comforting to get it all out of the way, rather than Chinese water torture.

BAY: In some ways it might be comforting, so what does that mean, you think, we'll see in trading tomorrow?

MCKECHNIE: I would guess you will open down sharply in stocks like Cisco. As people recognize that maybe the rate of change will improve going forward, it should give some support to the stock. Cisco is really a mid-cycle type stock. You've got to remember that semiconductors, cell phones, PCs, companies like this, had the confessions earliest. Cisco's kind of in the middle and we will still see more from fiber optic companies.

So, it fits where people think it ought to fit. The magnitude, as you mentioned, is quite large, but not a complete shock.

BAY: How do you weigh in on the semiconductor debate? Yet another somebody else weighing today with some negative comments. Have we seen the bottom in the semis or not?

MCKECHNIE: I would guess we have seen the bottom. As far as going off to the races, it's probably a bit soon. I've been working under the assumption that the economy would finally find a bottom at about Thanksgiving of this year. Therefore, we will probably start seeing the signals in June or July to give some lift to this stock.

So, it is probably for an upgrade. The stocks reflected that quickly.

BAY: What have you been doing in terms of your chip stocks?

MCKECHNIE: Last week, we were in position for the upgrade. Now we have about a 20 percent weight, which is about average for a tech fund. We'll look if the stocks get hit. We think the stocks are general in trading range between now and June and July. So, we'll be buying dips and selling spikes back to the market.

BAY: Add this all up. What does this mean for investors, anybody who is invested in techs? Where is this Nasdaq headed? What should investors be doing?

MCKECHNIE: Well, we need to be put things in context. Tech has been rolling for about a year now. March 14th was the top a year ago. The economic downturn has been about a year itself as well. I believe we're six months from the macro turn, so it should go up in three or four months. Now is a good time to buy with a one to three year horizon. If people want to get a little bit close to the upturn, I would guess that would be June or July.

BAY: And, real quickly, just a couple of seconds, any names before you start doing some buying?

MCKECHNIE: Sure. I've been buying some Dell, been buying some Compaq, some Micron Tech. I've actually started thinking about buying the Internet stocks. I've bought a little bit of AOL, little bit of eBay and considering Amazon. I believe the traits of these stocks is at their early cycle stocks, they ought to feel the lift first.

BAY: Dennis McKechnie, thanks for weighing in on that.

MCKECHNIE: Thank you.

BAY: Moving to our tech watch tonight: George Shaheen, CEO of on-line grocer Webvan, is calling it quits. Shaheen joined Webvan in September 1999, at the height of the Internet frenzy, abandoning his prestigious CEO position at Anderson Consulting, to launch Webvan's IPO.

Webvan now trades at 10 cents a share, down 99 percent from its Initial Public Offering. Meanwhile his old haunting ground, Anderson Consulting, now called Accenture, is hoping to launch its own IPO sometime this year.

Still to come on MONEYLINE, we're going to be talking with two CEOs with very different takes on the economy right now, John Chambers of Cisco and Sanjay Kumar of Computer Associates.

Plus, another side of the tax debate, how small business owners want to grab a piece of the tax cut pie.

(COMMERCIAL BREAK)

BAY: President Bush was out on tax day today, stumping for his tax cuts before business leaders. The president told the U.S. Chamber of Commerce that his budget would restore money to the taxpayers, before Congress could spend the funds.

(BEGIN VIDEO CLIP)

BUSH: My plan doesn't puncture the tax code with loopholes. It doesn't give special treatment to special interests. My plan targets only one interest: the public interest.

(END VIDEO CLIP)

BAY: The tax debate in Washington has so far focused on how tax cuts would affect American families. But what about the millions of small businesses that pay the income tax, and are hoping for a tax break? Peter Viles has that story.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): In a slowing economy, Mel Meadows is trying to buck the trend; he created ten new jobs when he opened pastry shop outside Washington last summer. He's also $400,000 in debt and is hoping for a tax cut.

MEL MEADOWS, PASTRY SHOP OWNER: Anything will help out. Any reduction in payments that I have, would certainly help me.

VILES: Meadows said he'd put any savings to the tax cut right back to the business.

MEADOWS: I would have to pay down the debt in the business obviously. And then we can move on and we can get health insurance and benefits for the employees.

VILES: Meadows is one of more than 10 million small business owners who pays income tax instead of corporate taxes. The Bush administration argues these small businesses are crucial to job growth.

PAUL O'NEILL, TREASURY SECRETARY: Contrary to the image people have that you have a big companies have these massive amounts of employees. When you look of the weight of the economy is, it's in very small firms that create new ideas and new wealth and new services for the economy. And that is really the mainstream of our economy.

VILES: Democrats opposed cutting top income tax rates, framing the cuts as a boom to the wealthy, not to small businesses. The higher taxpayers income, the more likely some of it comes from a business. Of individuals who earn $200,000 to half a million dollar in 1997, at least 43 percent reported income from a business or partnership.

In the half a million to million dollar range, at least 65 percent had business income. In the million and above category, 81 percent. For Meadows, the top tax bracket is not a concern; at least not yet. Right now, he's focused on survival.

MEADOWS: Everything that I own is on the line. You know, just things don't work out, I'll be moving in with you guys. You know, I hope you have some room.

Peter Viles, CNN financial news, Alexandria, Virginia.

(END VIDEOTAPE)

BAY: Coming up in the half hour of MONEYLINE: another body blow from a one-time new economy powerhouse: Cisco. We'll talk to CEO John Chambers why the profit picture looks so bleak.

But a rosier outlook at another hard-hit tech firm. Computer Associates looks to surpass forecasts, we'll hear from the man in charge, Sanjay Kumar.

Plus, a special report on the personal toll of a bear market. How portfolio losses may force some people to stay on the job, long after they had hoped to retire.

(COMMERCIAL BREAK)

ANNOUNCER: MONEYLINE continues.

BAY: In tonight's headlines: Cisco Systems lowers the bar on its quarterly earnings, blaming a slowdown in corporate tech spending. We'll talk to CEO John Chambers. The Nasdaq kicks the week off in the red, unable to build on last week's 14 percent run-up. And if your dreams of an early retirement have faded along with your stock portfolio, you're not alone. We'll meet several baby boomers who are forced to rethink their future.

A pullback for tech stocks after the Nasdaq's solid run last week. Leading the downturn, a rough day for chip stocks, on negative comments from Morgan Stanley Dean Witter. The Nasdaq fell by as much as 70 points earlier in the session, but finished off 51 points, or more than 2 1/2 percent, at 1,909.

Even with the weakness in Intel, the Dow still managed to finish the session in the plus column, thanks to strength from the likes of 3M, ExxonMobil, and Johnson & Johnson. The index closed up 31 points, at 10,158.

And then after the bell, a profit warning from Cisco Systems, and that's not all.

Amanda Lang has the details and the after hours trading reaction from Instinet -- Amanda.

AMANDA LANG, CNN CORRESPONDENT: Willow, there was an audible grown here at Instinet when Cisco warned after the bell today. Both profit and revenue light, 30 percent decline, in fact, in this quarter's revenue number. Profit now seen in low single digits. The Street's looking for 8 cents. Cisco's to report on May 8th.

It's also going to take a huge inventory right-off, $2 1/2 billion. It's cutting staff and taking charges. The stock was hammered after the bell. Cisco shares trading down $1.32 to 15.90. And there was collateral damage: Many other related companies falling. Among them, Juniper Networks down $1.83 at 46.55, and Canada's Nortel Networks, a big telecom equipment player, off 74 cents at 1,451.

Elsewhere, Unisys Corp. reported its quarterly profits. They were in-line with expectations of 22 cents a share. However, the company is seeing a slightly weaker second quarter and it also says that Hewlett-Packard has stopped reselling its services. Unisys stock down one at 1,325.

Finally, Computer Associates Corp., it had some good news to offer us after the bell and it got a boost as a result. It sees higher sales this quarter, and as a result the stock plunged $1.06 to 30.65. Profits could beat expectations by up to 4 cents a share: a little bit of welcomed good news after the bell here.

The revenue beat is not a huge one. The company says it's crediting a new business model for the higher upside on both revenue and on the bottom line.

We'll take the good news where we find it -- Willow.

BAY: Yes. Amanda, you are right about that. Amanda Lang, thanks.

For more now on Computer Associates, we are joined by the president and CEO, Sanjay Kumar, from the company's headquarters in Islandia, New York.

Sanjay, welcome back to MONEYLINE.

SANJAY KUMAR, PRESIDENT & CEO, COMPUTER ASSOCIATES: Hi, Willow. How are you?

BAY: Good. Before we discuss your specifics, I just want to get your reaction to something. John Chambers, who's going to be joining us shortly, and he's been saying for quite some time that this is one of the worst things he's ever seen, one of the toughest, most challenging business environments. Do you agree?

KUMAR: Well, John and I saw each other in Davos in February, and I think we talked about this. Clearly, we would agree that a challenging climate is out there for everybody. I think (UNINTELLIGIBLE) for us has been a new business model and really stellar execution in the quarter. And I think, you know, we're counting our blessings today, that we're very fortunate to pull off a really solid business quarter.

BAY: Yeah, you did pull off a solid quarter, but explain to us how that new business model, which is, as I understand it, subscription-based, helps you to do that. Is it just a difference in the way you book revenues?

KUMAR: Well, it really isn't, Willow. I mean, it's ultimately a difference in the way we count the beans, if you will, the revenue. But ultimately, it's a more flexible model where we're not going to customers asking for big deals anymore. We're focused on technology. And the reality in this quarter that we just announced, there's a 1.3 billion of revenue that we recorded that we didn't book in the quarter. It's waiting for the future.

So essentially, we divide the revenue up evenly over the life of the contract rather than taking it all up front, which all of our peers do, and we changed our business model to do that.

It allows us, I think, to sustain, you know, a business model and an operating efficiency in very difficult times like this.

BAY: Now, as you said, you have that revenue coming that you haven't yet booked. And one of the advantages, as you described it, earlier of this new business model is some predictability. So what kind of visibility do you have, you know, and what are you looking, what are you expecting going forward?

KUMAR: Well, I think, you know, in a challenging climate we cautioned an analyst today not to take up our estimates, but you know, we didn't throw any cold water on it. We did say we'll have full results on May 22nd.

But if you go back in history, in late January we came out and voluntary bumped our estimates by a penny. We topped that by 3 cents today. We topped The Street by 4 cents.

I believe the climate, you know, as Cisco and others have seen it will be very difficult for the next nine months, but the differentiator for us very clearly will be the competitive advantage that the new business model gives us.

BAY: I wonder if you could clarify, clearly your environment is challenging, yet your outlook is pretty good. What role are layoffs or work-force reductions playing at Computer Associates? There are reports that you have been laying people off. How many, and is it a cost-cutting measure?

KUMAR: Well, it's a very good question, Willow. In reality, we haven't laid off people. We had, like any other company, we review employees on a regular basis, and sometimes we make difficult decisions with individual employees.

We had in the month of January, which I think is the issue in question, about 300 employees that were let go. You know, there are companies out there cutting, you know, 5,000, 8,000, 10,000 people. We had 300 performance terminations at the company. I wouldn't call it a layoff.

And by the way, we're hiring people as well.

BAY: OK. So reports of you letting 2,000 people go were not correct.

KUMAR: Absolutely incorrect. As a matter of fact, those people that were counting on the press release numbers were incorrect, because we divested a division, highly public divestiture, which took about 1,500 jobs away.

BAY: Sanjay Kumar, thanks for joining us tonight and providing investors with a little bit of bright spot today.

KUMAR: Thanks, Willow.

BAY: Thank you.

Wrapping today's earnings news, profits declined sharply at Bank of America: the firm citing an "increasingly weak economic environment." Regional banks, though, turned in a slightly better performance. The Bank of New York reported income climbed 14 percent as consumer loans increased.

Drug giant Eli Lilly's bottom line grew nearly 17 percent, thanks in part to strong sales of its schizophrenia drug, Zyprexa.

And Continental easily beat estimates. Still, it posted a 35 percent plunge in profits. The other major carriers are all scheduled to report later this week.

Checking investor reaction, Bank of America slipped half a point while Bank of New York managed a slight gain. Lilly jumped up more than 1 1/2 and Continental lost ground.

Tomorrow Intel will report its first-quarter results. Ahead of that report, the stock sold off sharply, falling $1.82, or more than 6 percent, to finish off $26.30.

Terry Keenan joins us now from the New York Stock Exchange with tonight's "Behind the Numbers" -- Terry.

TERRY KEENAN, CNN CORRESPONDENT: Well, Willow, the chip stocks were hit today by a trio of reports that suggest the sector, which was the first to feel the free-fall in technology spending, has still not hit bottom. In fact, traders here were abuzz about the tidal wave of negative reports hitting the tech sector today, and that was before that Cisco bombshell.

With bellwether Intel set to report its earnings tomorrow, after the bell, Mark Edelstone, the influential analyst at Morgan Stanley, slashed his earnings estimates on Intel for the entire year by 25 percent, from 60 cents to just 45 cents, citing huge pressure on Intel's margins.

Overall Edelstone is just as gloomy on the entire group, saying that he expects another sharp decline in sequential revenues in the second quarter. Now, Edelstone notes that inventories are still high and says a sustainable rally isn't in the cards until revenue declines stabilize: perhaps not until this fall.

Now, Merrill Lynch, a very different take on the sector but with the same depressing conclusions. Analyst Richard Bernstein noted that the chip stocks have tracked industrial commodity prices in a remarkable pattern going all the way back to 1974. With raw material prices now down 11 percent year over year, Merrill says it is still too early to buy these chip stocks despite what it says are some very eager inquiries from clients looking to jump in. And rounding out the parade of dire warnings about the group today, Dan Niles, who seems to find a new reason to be negative on the stocks that he follows every trading session. Today, he warned that while Intel may make its diminished first-quarter numbers tomorrow, brutal price cuts are in Intel's future and it is too early to call a bottom.

The bottom line: These earnings projections are coming down faster than the stock prices in the group. And at $26 a share, Intel is now trading at 57 times Morgan Stanley's new earnings target for 2001. Hardly a bargain, Willow, even in the best of times.

BAY: Yeah, exactly. Terry Keenan at the Big Board. Thanks, Terry.

Coming up on MONEYLINE: Cisco issues a warning one analyst calls "abysmal." Chairman and CEO John Chambers joins us next to tell us how bad business really is.

(COMMERCIAL BREAK)

BAY: In tonight's MONEYLINE focus: troubled times for computer networker Cisco systems. As we said after the bell, the company warned it will miss estimates for the fiscal third quarter, saying the current climate has -- quote -- "never been more challenging."

Joining us now from San Jose, Cisco's chairman and CEO, John Chambers.

John, as always, welcome to MONEYLINE.

JOHN CHAMBERS, CHAIRMAN & CEO, CISCO: Thank you, Willow.

BAY: Let's start with the sales shortfall. Why was it so much bigger than anticipated?

CHAMBERS: What you're seeing in this market is that changes take place as customers understand their own requirements. And we saw a growth rate go from way over 70 percent in November, and then in December, about 60 percent -- suddenly, within 45 days, turn very challenging, and actually have periods of negative.

And so I think you're going to see both the downturns and the upturns occur at a faster pace than what we've traditionally seen, as business leaders have a better feeling for what their business is and where are their profits.

BAY: Are you seeing this downturn cut across all business areas, and -- that first, and then we'll go on to globally.

CHAMBERS: We're seeing in the U.S. a cut across most business areas. It has been extremely hard in the alternative service provider marketplace, and service providers as a whole, with a slowdown being almost twice as market in traditional enterprise customers. Enterprise customers in the manufacturing industry were the first to see it. We're seeing that spread to high-tech and other areas. BAY: And then, globally, you have indicated that you are seeing signs of slowdown spreading. What are your numbers telling you?

CHAMBERS: We've seen the Asia-Pacific arena, primarily for the exporting countries, slow down, more in service providers than in enterprise. But we've seen some enterprise slowdown as well -- Korea, Taiwan, Australia, Japan. China, India remain reasonably good. In Europe, again, the service provider market being almost three times slower in terms of their decrease, or three times faster in terms of the decrease versus enterprise. Enterprise customers, primarily UK and Germany, showing a little bit of softness.

BAY: One of the things that analysts, over and over again today, expressed real surprise about was the size of your inventory write- off, $2.5 billion. You still have another 1 billion and change in inventory there. And one of the things you, Cisco, is known for, is its outstanding inventory management.

In hindsight, was there anything you could have done differently?

CHAMBERS: Well, there's always things you could have done differently. If you had anticipated a hundred-year flood, and the flood wasn't going to be just down 5 percent or 10 percent -- remember, we'd never had a quarter below 3.5 percent growth in our history. We thought a really challenging quarter would be down maybe 5 percentage points, or 10. We took that into consideration our inventory, but we never dreamed a 30 percent decrease could happen.

To the second part of the question, understanding the environment we came out of. During the entire calendar year of 2000, we had a large number of our products on allocation, which means we couldn't even give customers delivery dates. Our average lead times were in the six- to 15-week time period -- remembering, customers expect one to three weeks. We were leading 5 percent, probably more, revenue growth per quarter on the table than our competitors were getting because we could not deliver.

And each quarter, we got more aggressive in how much inventory we carried in a supplier market. The inventory components were, themselves, often in the 10- to 15-week range, with a number of them going out 26 weeks. And so if you're going to get the capacity you needed, you had to commit to your supply chain for inventory looking out four to six months. That's one level that you need if you're growing at 60 or 70 or above, percent.

When all of a sudden that turns negative, you suddenly have a lot more inventory than you need that you've committed to. So we will always take risk. When we stop taking risks, this is probably not the stock to have or the company that will break away.

But this one, we probably waited a little bit too long to address. And if we had it to do over, we'd anticipate a hundred-year flood and say: "Let's be more conservative."

BAY: Now you have been particularly pessimistic. You sounded the alarm bells a while ago, and you've kept up with giving us signals. Are things really that bad? Is it really a hundred-year flood, or are you trying to manage expectations?

CHAMBERS: I think in terms of the industry we're involved in, and that is the telecommunications industry, it is the toughest it's every seen in high-tech. You saw similar slowdowns, perhaps, in 1984 and '85 in the semiconductor industry, but in terms of the networking industry, we've never seen anything like it ourselves, or our peers.

In terms of how fast it occurred -- remembering, a 5 to 10 percent sequential down in any large industry is a disaster. I don't know of any industries our size that have ever seen this rapid a drop- off.

Having said that, as business picks up and capital spending and the economies come back, I think you will see people again spend in this industry, and that's why, in the long term, I'm comfortable with a 30 to 50 percent growth for our market segment. Where within that range, depends on how well we execute.

BAY: And of course, we'll be keeping an eye on that, as we always do. John Chambers, thank you very much for joining us tonight.

CHAMBERS: Thank you, Willow.

BAY: Coming up on MONEYLINE: a massive explosion at an oil refinery leads to rising crude prices in trading pits. The details, when MONEYLINE continues.

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BAY: In our "Sector Report" tonight: oil stocks. Crude oil prices surged today after a major explosion at a Conoco oil refinery in northeastern England. The blast forced Conoco to shut down its crude distillation units, which produce more than 200,000 barrels a day. The news comes as refineries struggle to meet rising demand for gasoline.

And many analysts fear further production glitches like this one could cause prices at the pump to hit another all-time high this summer. Today, crude oil prices gained 54 cents, to close at $28.79, up almost 15 percent over the past month. And oil stocks followed suit. ExxonMobil added more than 2 1/5. Chevron gained 2, and Phillips, Texaco, and Royal Dutch Shell all ended up more than a dollar.

Coming up on MONEYLINE: The recent market downturn has dealt a major blow to many investors, squelching dreams of an early retirement. That story when MONEYLINE continues.

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BAY: Now, a MONEYLINE special report. It is a sudden, alarming reality facing many working Americans in their 50s. For years, they worked, saved and invested, hoping to quit their jobs and start living the good life. But the bear market is dashing their plans, leaving dreams of early retirement on hold. Fred Katayama reports.

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FRED KATAYAMA, CNN CORRESPONDENT (voice-over): Bill Smith dreamed of building an inn.

BILL SMITH, PG&E EMPLOYEE: The wife and I were talking and planning and making breakfast menus.

KATAYAMA: Like many Americans in their 50s, Bill dreamed of retiring early. But he'll have to dream on. The vicious stock market crushed his plans.

The Northern California resident had hoped to come home for good next year from his job as a senior mechanic at Pacific Gas & Electric.

SMITH: This reminds me of the first floor plan...

KATAYAMA: His plan was to retire and build his inn in this historic park. But he invested three-fourths of his 401(k) in just one stock, PG&E, once a widows-and-orphans stock known for its stability. But the energy crisis in California short-circuit the stock, and then two weeks ago...

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: We do have some breaking news for you at this hour. One of the two major utilities in California is filing for Chapter 11 bankruptcy protection.

(END VIDEO CLIP)

KATAYAMA: That day, the stock fell 42 percent to 6 1/2, down more than 70 percent since September.

SMITH: I went to bed one day, and it was $30 a share; I woke up, and it was $8 a share. My plans changed to the extent that I don't know if I'll be able to have that bed-and-breakfast inn.

KATAYAMA (on camera): From Silicon Valley in California to Hampshire county in Massachusetts, many investors hoping to retire early have seen their dreams dashed. Tempted by success stories of other investors, they betted big time on the big bull market, at an age when they should have shifting their money into safer investments. Stocks plummeted, and the retirement savings shriveled just when they could least afford it.

(voice-over): A survey by the Employee Benefit Research Institute found that people in their 50s have more than half of their 401(k) invested in stock funds, and more than 19 percent in a single company stock.

ROBERT MAUSEL, WING MEMORIAL HOSPITAL: Take a deep breath in.

KATAYAMA: 58-year-old doctor Robert Mausel invested aggressively in tech stocks, in the hopes of retiring next year from stressful emergency room. At one point, he made more money off stocks than with stethoscope. With 70 to 90 percent of his portfolio in tech, his holdings have shrunk by $400,000 from its peak.

MAUSEL: I called -- it almost crashed, a bubble burst. This correction has significantly cut my amount of money in that I will be using to generate income.

KATAYAMA: Given the financial emergency, he will be working in ER a while longer.

But others don't have an income to fall back on. Take 50-year- old Diane Feen, a freelance journalist forced to retire early by lung disease. Her goal: buying a home in Florida.

But now she has to move out of her rental unit instead of buying one. This conservative investor used to live off her interest in bonds and CDs. But prodded by friends to get into the red-hot stock market, she began buying stocks in February last year, one month before the Nasdaq started its slide. Her nearly all-tech portfolio has slid 75 percent.

DIANE FEEN, WRITER: I'm so shocked and so angry, and I've lost for me a lot of money. What I lost has got to be equal to what I made in the last seven years, eight years.

KATAYAMA: Diane will leave Manhattan and move in with her mother. And she will return to writing to generate income.

FEEN: I somewhat feel like Little Red Ridinghood. You know, I mean, I'm 50 years old, and I know a lot about life. But I realize now that I was like a 5-year-old when it came to the stock market.

KATAYAMA: Back in Massachusetts, Robert plans to work another three years in ER to cover his shortfall, and toil 10 years at this geriatric center.

In California, Bill will punch the time clock for two more years, then he will build a smaller inn than he had originally planned.

The golden years will have to wait.

Fred Katayama, CNN Financial News, Northampton, Massachusetts.

(END VIDEOTAPE)

BAY: Up next: "Ahead of the Curve," some of what you need to know tonight before the markets open tomorrow. Stay with us.

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BAY: Taking a look at some of what could move the markets tomorrow. Keep an eye on shares of Cisco Systems. After today's closing bell, the company warned it will fall short of profit forecasts for the current quarter.

More on corporate earnings tomorrow with Intel. After two warnings earlier this year, the Street is expecting 15 cents per share. Also tomorrow, Eastman Kodak, Philip Morris, Caterpillar, Johnson & Johnson and Texas Instruments.

Plus, a read on the economy with the consumer price index for March, expected to show a slowdown in the overall and the core rate from February. More on the economy with housing starts and industrial production, both for March.

And to stay a step ahead of the markets, tune into "AHEAD OF THE CURVE." That's at 5 a.m. Eastern right here on CNN.

That's MONEYLINE for this Monday. I'm Willow Bay. "CROSSFIRE" is next.

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