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Lou Dobbs Moneyline
Dow Falls 51.66 to 10,883.51; Nasdaq Advances 25.20 to 2,198.77; Productivity Falls 0.1 Percent in First Quarter; Cisco Posts Loss
Aired May 08, 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: Welcome to MONEYLINE.
We begin with a deeply troubling report from the company that was briefly the world's most valuable: Cisco Systems. After the bell, the high-tech bellwether said it lost more than $2.5 billion last quarter. Sales declined from the previous quarter and from the year-ago period, the first time that's happened since Cisco went public more than a decade ago. When you take out one-time items, Cisco beat already lowered expectations, but only by a hair. And the stock is down 73 cents in after hours action, at $19.65, in heavy volume.
Bruce Francis has been pouring through the report since it was released, and he joins us now with the details, and of course, Bruce, the crucial outlook.
BRUCE FRANCIS, CNN CORRESPONDENT: Right, Willow. Quite a report it is. On an unusually lengthy conference call with analysts and investors, CEO John Chambers waxed philosophical about business cycles in the new economy, but stopped for short of declaring this historic slowdown over.
(BEGIN VIDEOTAPE)
FRANCIS (voice-over): With inventories mounting and customers trigger-shy, Cisco reported its first sequential drop in revenues, a contraction that CEO JOHN CHAMBERS called the biggest deceleration that any company of Cisco's size has ever experienced. It was a big one too: A 30 percent drop from last quarter, in line with guidance Cisco lowered three weeks ago. The bottom line: Earnings of 3 cents a share, a penny above Wall Street's consensus.
STEPHEN KAMMAN, CIBC WORLD MARKETS: I think what you are looking at is a company that is seeing a leveling off of the growth rate as they mature. It's only because they've done so well. They dominate their enterprise market and in the telecom market we're seeing a slowdown.
FRANCIS: Not included in those results: $3.3 billion worth of charges, including $2.2 billion for inventory, most of it, parts. Include all the charges and Cisco lost a staggering $2.69 billion. Cisco has largely convinced Wall Street to factor that inventory charge out of estimates. KEN LEON, ABN AMRO: It's become a heated issue with investors. They are obligated to take the charge for that inventory even though a sizable part of that is core products that are likely to be used in the future.
FRANCIS: On the conference call, Cisco said that it was unlikely the company would use that inventory, but didn't rule it out. On that call, Cisco remains hesitant about the outlook, predicting that fourth quarter revenues will be flat, to down 10 percent. Chambers also says he believes that capital spending could be bottoming out over the next two quarters and the Cisco mantra of 30 to 50 percent long-term growth is achievable in a normal economy.
Shares of Cisco are still off almost 75 percent from their all time high. But since an intraday low on April 4, they are up more than 50 percent.
(END VIDEOTAPE)
Chambers says that it's now apparent to him that the new economy will have higher peaks and deeper valleys than originally thought and that the distance between those peaks and valleys would be shorter. I don't see any collapsing of that right now, though.
BAY: I know, Bruce. Not that what you mentioned isn't sizable enough, but are there other concerns with Cisco that investors should be keeping an eye on?
FRANCIS: Margins. They're getting down to the 50 percent range. That's's enviable for a lot of companies, not for Cisco, though. That's lower than their (UNINTELLIGIBLE). They're trying to cut cost but they're going to get squeezed here in the short term.
BAY: Quite a road ahead. Thanks, Bruce.
Well, we'll get the outlook on Cisco and the entire industry from Cisco's CEO, John Chambers. He will join us later in the program.
Another major league tech firm warned after the bell that it was scaling back. National Semiconductor said it would cut 1,100 jobs, or 10 percent of its work force. And the chip maker slashed its outlook for the current quarter, blaming a fall-off in orders because of the slowing economy. National Semi said it would, at best, break even, when analysts had been looking for earnings at 4 cents a share. In after hours activity the stock is off a dollar.
During regular trading Cisco was one of the winners in what was overall a mixed day for the markets. The Dow retreated for the second straight day losing 51 to end at 10,883. But Cisco helped drive the Nasdaq higher, gaining 25, to close at 2,198. And the S&P fell too to end at 1,261.
We have complete market coverage tonight with Greg Clarkin at the Nasdaq and Allan Chernoff at the New York Stock Exchange. And that's where we begin -- Allan. ALLAN CHERNOFF, CNN CORRESPONDENT: Thanks, Willow. While the Dow industrials and the S&P 500 did end down, gainers led losers here at the Big Board by a narrow margin. Like yesterday, volume was light, less than a billion shares traded. The financials were a sector in focus, dipping for the second day in a row. All three financial components of the Dow Industrials were lower: American Express, J.P. Morgan Chase and Citigroup.
Together they accounted for a loss of 31 points in the Industrial Average. Morgan Stanley downgraded American Express, to "neutral" from "outperform," saying Amex could suffer as unemployment and bankruptcy filings rise in the nation. Yesterday Prudential Securities downgraded JP Morgan Chase arguing the soft economy could hurt the bank's financials.
3M also fell, as the new CEO James McNerney told shareholders 3M needs to introduce new products more rapidly. Now one reason trading here has been relatively quiet, first quarter earnings season is almost finished. 89 percent of the S&P 500 companies have now reported their financials. So far, earnings for those companies are down 4.8 percent compared to the same period last year.
Wall Street is expecting the current quarter, the second, will be the bottom for earnings. The consensus forecast now calls for a drop of 11.4 percent compared to the year-ago period, down 2.7 percent in the third quarter, and coming back 9 percent in the final quarter of the year. And, that turn in earnings is what the bulls are looking forward to. Let's check in now with Greg Clarkin. He's standing by at the Nasdaq Marketsite -- Greg.
GREG CLARKIN, CNN CORRESPONDENT: Allan, the word of the day here was anticipation really, anticipation over that earnings report from Cisco Systems. That kept the Nasdaq trading in a fairly narrow range. It ended up with 25 point gain, just a couple of points shy of the 2,200 level.
Let's take you back here to the wall. It will give you an idea of what was moving today. We did see a big pop in Cisco Systems and that lent a nice underpinning of support to the entire networking sector. Take a look at the Amex Networking Index, up 2 percent. Look at Extreme Networks, up 9.5 percent on the day. The chip stocks, keep in mind this is before National Semiconductor's profit warnings, the chip stocks rallied 1.6 percent.
PMC Sierra with a big pop. It was up better than 12 percent. On the down side, we had the Hardware Index slightly lower, but look at the loss of Dell, it was down 4.3 percent. After announce yesterday, after close of trading a lot of analyst weighing in today, saying that growth guidance from the company will probably have to be lowered. And then take look at shares of Amazon.com. It was down better than 4 percent, even as the Goldman Sachs Index rose.
Out of Prudential Securities this morning, the analyst Mark Rowan came out with a very critical report of Amazon, saying that their much valued customer base is a rapidly depreciating asset. He reiterated his "sell" rating, a lot folks listened today, driving that stock lower. So that's how things played out here at the Nasdaq. Let's send it back to Willow.
BAY: All right, Greg, thank you.
Today was yet another session of generally small moves, and relatively light volume. And our first guest says that shouldn't be a surprise. Investors are already in a Fed holding pattern waiting for a decision on interest rates one week from today. Steve Shobin, president of Americap Advisers.
Steve, welcome.
STEVE SHOBIN, AMERICAP ADVISORS: Thank you.
BAY: One of the things you talked about last night was a bit of a ceiling at 11,000. Is that something that you look at? Is that something that's going to be tough for this market to crack?
SHOBIN: Well, I think it is. I think the Dow has come so far so fast without much preparation that it will probably run into trouble here and possibly around 11,800 as well.
BAY: And when you say "without much preparation," does that mean the foundation, the underpinning of that April rally is not as solid as you'd like to see?
SHOBIN: Absolutely correct. I mean, given the provocative precedent of multiple Fed rates cuts, and the steepening of the yield curve, it would be a stretch to say we haven't made a bottom. But for a really tenacious enduring rally, we need some convalescence, we need some rebuilding and we haven't that.
BAY: You look at some somewhat unusual factors indexes when you give us a sense of what's ahead. Let's look at some of them. First of all, financials: What are you looking at when you look at financials?
SHOBIN: Well, we're looking at the New York Financial Index, and this is important because generally stocks tend to do best when financials are firm. When financials waver and are tepid, the overall market tends to do likewise. So, I think it's critical to watch the New York Financial Index. Any loss of momentum there would be a big negative for the overall market.
BAY: OK, the other thing that you look at is the dollar. Why?
SHOBIN: Well, in a sense, the dollar is the world's vote of confidence in our fiscal and financial and Federal Reserve policies here in the United States, and as long as the dollar is strong, it's the world's inimitable way of saying, "Hey, things aren't that bad," and in that environment something is likely to work. If the dollar were to fail miserably and come down sharply, that would be, Katie, bar the door.
BAY: All, right, so put all that together and what lies ahead here?
SHOBIN: I think the market has made a good but not great bottom. I think we'll probably struggle around the meeting next week, pull back and then work selectively higher into the summer. But the lack of rebuilding means to me that the fall is not going to be a happy time.
BAY: All right. Some tough times ahead for investors. Steve Shobin thanks.
SHOBIN: Thank you.
BAY: Ahead on MONEYLINE, John King's wide-ranging interview with the vice president, Dick Cheney: his outlook on America's energy crisis, the threat of recession and much more.
Another disturbing report on the economy: a surprise drop in productivity.
And John Chambers has rattled the markets before with troubling talk about the tech business. So what is the Cisco chief saying now? Find out coming up on MONEYLINE.
(COMMERCIAL BREAK)
BAY: California utilities within the last hour ordered a second day of rolling blackouts, this to cope with a spring heat wave that furthered strained the state's hard-hit power grids.
The current wave of blackouts, which began yesterday, were the first since late March. They're meant to cope with the increased use of air conditioning as temperatures around the state head into the 90s. California officials said that the savings from conservation efforts had not met expectations. No rest from the heat wave is forecast until Thursday.
From blackouts in California to sky-high gas prices, the energy crunch is a major concern for the entire country, and is sparking heated debate as to how the Bush administration should respond.
Senior White House correspondent John King today sat down with Vice President Dick Cheney for a wide-ranging discussion on energy policy. And John joins us now with all the details -- John.
JOHN KING, CNN CORRESPONDENT: Well, Willow, as we await the administration's report, due out next week, it is increasingly clear that every day now, whether the issue is rising gasoline prices at the pump or another day of rolling blackouts in California, these immediate energy concerns, energy problems are driving the political debate over the administration's long-term strategy. But the vice president insisting in that interview, whether the issue is California -- they want an electricity power cap; this administration says no -- price cap, excuse me; this administration says no -- or a quick fix to gas prices, Mr. Cheney insisting the problems did not come about overnight and they won't be solved quickly or easily.
(BEGIN VIDEO CLIP)
RICHARD CHENEY, VICE PRESIDENT OF THE UNITED STATES: Well, you have to ask your self how it is we got to this state, John. Why do we have rapidly rising gasoline prices today? And a lot of that has to do with the fact that we have not had a coherent national energy policy for many years.
We don't have the refineries, for example. We have not built a new refinery in this country for over 20 years. So the market is very, very tight for gasoline. And we've added a lot of requirements because we want clean air. The combination of those things is what in fact is leading the price spikes this summer for gasoline.
The solution for us is to try to deal with these issues on a long-term basis so that we get more supply. That's the key to having the adequate prices as well.
(END VIDEO CLIP)
(BEGIN VIDEO CLIP)
KING: You received some criticism after your speech to the Associated Press meeting in Toronto where you said, quote, "Conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy."
The governor of California said just last night on CNN he thinks you're missing the boat, that you don't understand the value and the potential of conservation.
As you answer the question, or respond to the governor, if you will, what specifically will this plan do, and does this administration want to do, in terms of conservation? And what kind of new money are we talking about?
CHENEY: Well, you'll find that most of the financial incentives that we recommend in the report go for conservation or renewables, for increased efficiencies. Now, we don't have a lot of new financial incentives in here to go out and produce more oil and gas, for example, so we believe in conservation, we believe in renewables, we believe in wind and solar and all of those other technologies.
But the bottom line is the so-called "renewables" only provide about 2 percent of our electric generating capacity today. If we triple that over the next 20 years, it will only be 6 percent. Conservation's important; we've got a major emphasis on conservation in our report.
But what's happened in California, I would argue, is they've taken the route of saying: "Well, we can conserve our way out of the problem. All we have to do is conserve; we don't have to produce any more power." So they haven't built any electric power plants in the last 10 years in California, and today they've got rolling blackouts, because they don't have enough electricity, they've got rising prices, they've got a whole complex of problems that are caused by relying only on conservation and not doing anything about the supply side of the equation.
(END VIDEO CLIP)
(BEGIN VIDEO CLIP)
KING: 1973 since anyone in the industry has proposed a new nuclear power plant. My understanding is the report will promise to beef up the permitting staff so you can get through the applications faster. Anything else the administration is prepared to do to encourage the nuclear industry? And do you seriously believe that in the current political environment that the industry will step forward and say, let's build more nuclear plants in this country?
CHENEY: Well, I think the environment's changed for a couple of reasons. First of all, I find, as I get out and talking to people and also with members of Congress who are pretty sensitive politically, that there's much greater willingness today than there was a few years ago to look at the question of nuclear power as a potential source for us for electricity.
The problems, up to now, have been driven in part by economics. All of the controversy that surrounded nuclear power in the past discouraged many utilities from making that investment. Now, with the gas prices rising as dramatically as they have, nuclear power looks like a pretty good alternative from an economic standpoint, if the permitting process is manageable and if we find a way to deal with the waste question.
(END VIDEO CLIP)
KING: Critics lining to take issue with the administration's approach even before that report is out. One key test of the environmentalists, they want the administration to impose new fuel- efficiency standards on the automobile industry. But CNN told by sources the report will not do that. Instead, it will adopt a wait- and-see approach, awaiting a new report on that issue, fuel efficiency, from the National Academy of Sciences due out in early July -- Willow.
BAY: And John, on another issue, sanctions against Libya and Iran, at this point where do things stand?
KING: Well, a very different approach from just a few weeks ago. One of the draft reports circulating suggested that perhaps the administration would take the very controversial step of recommending a lifting of sanctions, not only to allow the United States to directly do business with Iran and Libya, but also allowing U.S. companies to go into those countries for exploration.
But again, CNN told by senior administration officials the final report will take a much more cautious approach. It will say that the administration should work with the Congress on assessing whether those standards had been effective with an eye on reforming those sanctions, but it will not take the step of actually recommending that those sanctions be lifted. And the reason we're told is that President Bush is not prepared to do so. BAY: John, a very interesting interview with the vice president. Thank you for bringing us that.
The vice president today also addressed the state of the economy just as the government flashed another caution light.
Lisa Leiter has that part of the story from Chicago.
(BEGIN VIDEOTAPE)
LISA LEITER, CNN CORRESPONDENT (voice-over): Vice President Cheney said in an interview with CNN that he's not sure if the economy has seen the worst of this slowdown.
(BEGIN VIDEO CLIP)
KING: Are we still at risk of recession?
CHENEY: I think we are; we don't know yet. The basic answer is we don't know whether we're going to tip over into negative territory or whether we've sort of hit bottom here and we'll level out and begin to climb again.
(END VIDEO CLIP)
LEITER: But most economists still believe the nation will avoid the textbook definition of a recession: back-to-back quarters of declining GDP.
JOSHUA FEINMAN, DEUTSCHE BANK ASSET MANAGEMENT: The economy is going to look -- start looking better later this year and next as the inventory correction that has been hampering manufacturing activity subsides and as the impact of easier monetary policy and easier fiscal policy in the form of tax cuts starts to boost activity.
LEITER: Clearly, the economy needs a boost. A report today shows productivity dropped for the first time in six years, falling 1/10 of a percent. Productivity measures output per worker and has been vital to the economy's record expansion. It allows businesses to raise wages without charging customers higher prices.
So as output declined, unit labor costs shot up 5.2 percent, the biggest jump in three years.
PAUL KASRIEL, NORTHERN TRUST: Businesses are going to have higher costs, and if they want to stay in business, they're going to have to pass those costs on in the form of higher inflation.
LEITER (on camera): While the report fanned some inflation fears, it did not change expectations for another half point interest rate cut by the Federal Reserve when policy-makers meet next week.
Lisa Leiter, CNN Financial News, Chicago.
(END VIDEOTAPE) BAY: Just ahead, we've all heard about the slump for dot-com companies, but is the Internet itself losing its luster? Are fewer Americans logging on? We'll check out a surprising survey.
(COMMERCIAL BREAK)
BAY: Home Internet access declined in the first quarter of 2001, registering its first drop. According to industry research group Telecommunications Reports International, online household subscribers dropped 0.3 percent to 68.5 million. And while that drop may seem small, it's a dramatic reversal from the 20 percent quarterly increase seen over the past six years. The decline is explained by the fallout in free Internet service providers, which saw a nearly 20 percent drop in subscribers. That drop erased growth in other areas.
Cable modem subscribers, up 18 percent. Paid dial-up, growing nearly 8 percent. And DSL up 2 percent.
Amy Fielding, managing editor of the report, told MONEYLINE today that: "We probably won't ever return to overall growth of 20 percent. The growth in online access at home is leveling off."
Coming up, the Pentagon looks to extend its reach in space. We'll check out which defense companies may stand to benefit.
(COMMERCIAL BREAK)
BAY: Secretary of Defense Donald Rumsfeld announced a major new direction for the U.S. military, into space. Rumsfeld unveiled a plan to reorganize the Pentagon's efforts in space, saying the United States needs to protect its turf outside of this world.
Allan Dodds Frank has the story.
(BEGIN VIDEOTAPE)
ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): The space business could get a big boost from Defense Secretary Donald Rumsfeld's reorganization of the Pentagon. The defense secretary allowed Senator Bob Smith, a fellow member of a commission on space with Rumsfeld, to set a tone of urgency.
SEN. BOB SMITH (R), NEW HAMPSHIRE: There are nations out there who are hostile to us, and they are in space. They have such weapons as lasers, anti-satellite weapons, and electromagnetic pulse weapons, and we have to be ready to recognize that threat.
FRANK: The defense secretary is putting the Air Force in charge of new and existing programs to develop capabilities in space. Rumsfeld gave no specifics but said as many as a dozen development programs could be geared up to find the right answer.
DONALD RUMSFELD, SECRETARY OF DEFENSE: What we have is a whole network of things that are civilian and commercial and military that are dependent on space assets. The question is, how do you deter and dissuade people from taking action against those assets in a time of tension or conflict.
FRANK: Rumsfeld's emphasis on more might in space dovetails with the president's push for a national missile defense. So which companies could benefit most?
PIERRE CHAO, CREDIT SUISSE FIRST BOSTON: Boeing and Lockheed Martin, the two largest military-satellite and space-launcher manufacturers; TRW that does military satellites -- and Alliant Techsystems that does all the rocket launchers that go on board those space boosters.
FRANK GAFFNEY, CENTER FOR SECURITY POLICY: There will be enough money to go around pretty widely in the community of people who are still involved in the aerospace industry. There will, however, be, I think, a special premium if this is done right, on smaller technology houses.
FRANK: Extra money for space is a long way from being appropriated by Congress. But investors should note that Rumsfeld is following an old military maxim: always take the high ground, even if it is in space.
Allan Dodds Frank, CNN Financial News, New York.
(END VIDEOTAPE)
BAY: Checking how some of those defense stocks fared today: Boeing, Lockheed Martin, Raytheon, TRW, and Alliant Techsystems all moved little today.
Coming up in the next half hour of MONEYLINE, we'll hear from Cisco boss John Chambers about his company's terrible quarter. Deep in the red: What's ahead for Cisco? And dog days for the PC business: With the big box makers slashing jobs, slashing prices and cutting forecasts, is a major shakeout on the way?
Plus, Chinese Present Jiang Zemin shows up at a global conference, in the face of protests.
(COMMERCIAL BREAK)
BAY: In tonight's headlines, Cisco posts a loss of nearly $2.7 billion after charges, placing blame on a slowing economy. Can it get any worse? We'll ask CEO John Chambers.
And a mixed day on Wall Street: the Nasdaq posts a gain, while the Dow takes a dive.
Plus, as box makers struggle, whispers of potential deal making circulate on Wall Street. Is an industry shakeout on the horizon? We take a look.
But first, a mixed day on Wall Street. Blue chips traded lower, while tech issues showed strength across-the-board. The Dow fell for the fourth time in five sessions, weighed down, in part, by news that worker productivity last quarter dropped for the first time in six years. The Dow finished down 51 points to 10,883.
A better day for the Nasdaq. Ahead of the after-hours Cisco news, Morgan Stanley upgraded the stock, helping fuel an early tech rally. But the index struggled to keep up momentum, ending up 25 points to 2,198. A down day for the broader markets, the S&P 500 closing off 2 points to 1,261.
For a look at how Cisco shares are trading after-hours, we check in now with Jen Rogers at the Instinet trading floor -- Jen.
JEN ROGERS, CNN CORRESPONDENT: Well, it was quite a volatile after-hours session here for Cisco. Right now, shares are down 23 cents at $20.15. Now, the routing giant came out, slightly beating lowered estimates at 3 cents a share, but we saw this stock down more than a dollar, so it's a bit of a comeback here.
But it dragged a bunch of other names down with it. Juniper Networks one of those. It's down $1.65 right now at $57.25. This company is a rival of Cisco's in the routing business. It was initially higher on the news, but did a 180-degree turn and headed south. Another name falling is PMC-Sierra. This is company off $1.10 here at $43. This is a communication chip-maker and a Cisco supplier; 211,000 shares changing hands on this one.
And another story we were watching after-hours was from National Semiconductor. The company came out warning that it sees sales for the fourth quarter down 16 to 18 percent from the third quarter. It also announced layoffs of 1,100 employees. That's about 10 percent of its global work force. Shares down a dollar.
But the real story was Cisco, and it probably will be tomorrow -- Willow.
BAY: Exactly, busy night there. Thanks, Jen. For more on Cisco's latest quarter and the company's outlook, president and CEO John Chambers. He joins us from San Jose, California.
John, as always, welcome.
JOHN CHAMBERS, PRESIDENT & CEO, CISCO SYSTEMS: Thank you, Willow. It's a pleasure to be with you.
BAY: You have been rather dramatic in the way that you have described what's going on with Cisco and the industry, too, calling it a hundred-year flood, describing what goes on when you go from 70 percent growth rate to a negative 30 percent contraction. At this point, where are you and what's ahead?
CHAMBERS: I think this industry is going to be the place to be over the next decade, with or without Cisco, and I'm obviously very optimistic on Cisco. What we've all learned, though, is that the peaks in this industry growth are going to be much higher then we anticipated and the valleys much deeper, and how quickly they transition from one to the other is very key for companies to handle smoother than we handled it this last time. But my optimism looking forward, we have gotten our expense reductions behind us. We've done the head count reductions. We've positioned ourselves for growth, and we're moving to where we see the growth markets. So, in the long run, with good economies, I'm very bullish about our industry and bullish about Cisco.
BAY: As we just heard Jen Rogers note, you did get an upgrade today from a Morgan Stanley analyst, and one of the positives that he noted was the suggestion that there was some encouraging news from your enterprise customers. Do you see any encouraging news on the horizon there?
CHAMBERS: Well, I think people tend to look at this industry as across-the-board. It actually is very specific to countries and specific industries. So, the enterprise industries, the retail industry, the government segment, the pharmaceuticals are doing fine. It's the manufacturing, the high tech, the dot-coms and the telecommunications that are under more pressure, and it varies by country. China, India, Southern Europe doing well: U.K., Germany, Korea, Taiwan and Japan being more challenged.
BAY: One of the areas, of course, hardest hit is the telecom service providers. What are you seeing there? Is the worst over?
CHAMBERS: Well, the worst is probably over for the alternate service providers. To use the U.S. as an example, we've gone from 300,000 customers in that area to 150. The ones that are there now are tier one consolidators.
They have good financial backing, and while there will be a few shake outs still to occur, we look at this starting to return to growth again in the next one to two quarters. The same thing in Europe in that segment. The big service providers are still going to be under pressure in terms of their cap-x spending, and it might be another quarter or two before that starts to turn around.
BAY: When you mentioned your cost-cutting a moment ago, how much have you saved in terms of cost-cutting and are you confident that's enough of should investors anticipate some more?
CHAMBERS: We have modeled what we hope will be a conservative model for this next 12 months. We brought our expenses down in line with that model. In order to get back to the profitability that we like, which is that income 20 percent target in gross margins in the 60 percent range, we obviously have to get the top line growing.
But we brought the expenses down dramatically. We're saving almost a billion dollars-plus a year off the expense line. We've taken all of our costs at one time. We've been very conservative in how we've done that, and contrary to some of the issues, we're not going to use any of the inventory in way that would effect our gross margins going before. If there are any changes in that, we would alert and announce it to the market.
BAY: You mentioned your top-line growth. Are you still confident that you can achieve that range that you've always described to us, in the 30 to 50 percent annual growth rate?
CHAMBERS: Willow, whenever we are in the 30 to 50 percent annual growth rate and we go above it, people will say we're being too conservative. When it drops below, they say we're being too aggressive. I think the business leaders and the government leaders understand the impacts this industry can have on their companies and countries.
I think they're going to spend the money. Some of the more conservative projections are 20 percent. I think 30 to 50 percent, given good economies and a good market will be fine.
BAY: Of course, given good economies, the important element there, no doubt. John Chambers, thanks, as always, for joining us.
CHAMBERS: Willow, my pleasure. Thank you.
BAY: Some of tonight's notable movers: Carter-Wallace. The company is off the auction block, selling for a total of $1.1 billion. It will be split in two. Church & Dwight is teaming up with a private equity firm to buy the consumer products division, which includes the best-selling Trojan and Nair brands. Meanwhile, a consortium of private equity firms will buy Carter's health care division. The deal is valued at $20.30 a share. That is lower than Carter-Wallace's closing price yesterday, and today the stock fell more than 2 1/2 to $19.99.
Helen of Troy, which markets consumer products from companies like Revlon and Vidal Sassoon, beat the street by two cents a share, and upped estimates for the fiscal year. The news sent the stock up more than 2 or 36 percent.
Ciena surged more than 6 after winning a contract to supply optical switches to TyCom, which builds fiber-optic communications networks. The deal is valued at $150 million over two years. Despite a recent rally, Ciena is still down 59 percent from its 52-week high of $151.
In other corporate news: Big changes at NBC. Andrew Lack, who has led NBC's News operations for eight years, is moving up to president and COO of the network, overseeing NBC's entertainment division as well as cable assets like MSNBC and CNBC. Bob Wright remain NBC's chief executive.
Worldcom launched its record sale setting bond sale today, and demand was so strong that it upped the deal to $12.3 billion. This is the second time the struggling telecom company has increased the size of the offering. It's been a solid year so far for investment grade bond deals in general. According to Thompson Financial, more than $274 billion worth have hit the market, and that's up 75% from a year ago. In trading today, Worldcom stock fell fractionally to $17.98.
Coming up on MONEYLINE, the president of China makes his pitch to business.
(COMMERCIAL BREAK) BAY: We actually have some fresh pictures of those rolling blackouts, ordered within the last hour, in parts of California. Those rolling blackouts left traffic snarled, as the power went out.
They were ordered, for the second straight day, as regulators try to cope with a spring heatwave that further strains the state's power grid. California's grid operator said the blackouts were likely to last an hour, or possibly longer.
Now, the current round of blackouts were the first since last March. Little relief from the heatwave is expected; that's not expected until Thursday.
The spy plane incident took another twist today, when a Chinese official said it was "impossible" for the damaged EP-3 plane to fly back to the United States. Beijing did not give any reason why it would be impossible, but the statement came one day after the U.S. Air Force resumed surveillance flights off the coast of China.
The EP-3 has been stranded on China's Hainan Island ever since colliding with a Chinese fighter jet last month.
And the Pentagon today says, it remains hopeful that quiet diplomacy will convince China to allow the plane to be repaired and flown back to U.S. territory.
China-U.S. relations are on display in a global conference in Hong Kong. The forum, sponsored by "Fortune" Magazine, which is owned by CNN parent company AOL Time Warner, attracted some high level participants who seemed more inclined to talk about economics than politics.
Mike Chinoy has the story from Hong Kong.
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MIKE CHINOY, CNN CORRESPONDENT (voice-over): At a time of political uncertainty in Beijing and diplomatic tension with Washington, Chinese President Jiang Zemin came to Hong Kong.
His purpose, to speak at the "Fortune" Global Forum, attended by hundreds of corporate chieftains and dignitaries, including former U.S. President Bill Clinton. His message, despite the distractions, China is open for business.
JIANG ZEMIN, CHINESE PRESIDENT (through translator): China's development will present huge business opportunities to business communities of other countries. We welcome more overseas investment, new investment projects in China, and long term stable corporation with us by business communities around the world.
CHINOY: Despite the spy plane crisis and other tensions with the U.S., Jiang didn't mention Sino-American ties directly. Instead, he denounced certain unnamed groups for creating tension harmful to economic progress. (on camera): Jiang's visit is also taking place against a backdrop of continuing controversy over human rights in mainland China, and concern about the future of civil liberties here in Hong Kong.
Throughout the day, members of the Falun Gong spiritual movement, which is banned in the mainland, gathered to meditate and protest Beijing's harsh crackdown.
UNIDENTIFIED MALE, FALUN GONG SPOKESMAN: We are using this as opportunity to ask Jiang Zemin to immediately stop the brutal suppression of Falun Gong in China.
CHINOY: While Falun Gong remains legal in Hong Kong, pro-Beijing forces have stepped up pressure for it to be banned here.
Meanwhile, as the forum's sponsor, AOL Time Warner, CNN's parent company, was hosting the Chinese president, Chinese authorities continue to ban the company's flagship publication, "Time" Magazine, because of an article it published on the Falun Gong in March.
Mike Chinoy, CNN, Hong Kong.
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BAY: Straight ahead on MONEYLINE, layoffs, price wars, and profit warnings, we'll take the pulse of the PC business, next.
Stay with us.
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BAY: In tonight's sector focus, PC makers.
Dell, of course, was out last night with its second round of layoffs, saying as many as 4,000 cuts are in the works. That news comes just as PC makers engage in a price war, prompting analysts to question if the sector as we know it can survive. Our own Steve Young has been looking into that and joins us now -- Steve.
STEVE YOUNG, CNN CORRESPONDENT: Willow, lots of different shakeout scenarios are being discussed. The PC landscape's likely to be very different in the not distant future and for many companies, stark.
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YOUNG (voice-over): How low can prices go? So low that Bear Stearns PC analyst Andy Neff has been thinking the unthinkable for a while: that IBM should get out of the PC business, maybe sell the unit to Dell, which might also buy Gateway, that H-P should buy Compaq.
And some experts believe in the next year or two, to save money, some consumers will turn to other devices for basic tasks.
DAVID KIRKPATRICK, "FORTUNE" MAGAZINE: To particularly get onto the Internet and one area where I see a lot of growth is in the game box in the home. And another huge area that we're just starting to see inklings of but will become very large in the next couple of years is the set top box, as TV and the Internet kind of get closer.
YOUNG: Other analysts think the paper thin PC profit margins play right into the hands of consumer electronics companies.
ROB ENDERLE, GIGA INFORMATION GROUP: As the PC gets down to something with very slim margins, so economies of scale make the biggest difference, then somebody that has the ability to build lots of things with very slim margins should have an advantage, and Lucky Goldstar in Korea would be one of the firms that would have that capability.
YOUNG: Lucky what? LG electronics is Korea's biggest electronics manufacturer but not well known in the U.S. because it makes products sold under other brand names. LG Electronics, and Sony in Japan, and Thompson in Europe, could crank out cheap PC's or scoop up existing PC companies at bargain prices.
Giga analyst Rob Enderle says look closely at these big companies now selling PC's in the United States. He says the list will shrink.
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YOUNG: If market conditions don't improve radically, Enderle says two of those companies will be out of the PC game in the U.S. within two short years -- Willow.
BAY: Steve, who's most likely to get voted off the island at this point?
YOUNG: He says he doesn't want to play taps prematurely, and help.
BAY: All right, Steve Young, thank you.
Taking a look at how PC related stocks fared today: Dell down more than 1. Hewlett-Packard, Compaq, and Apple all off fractionally. IBM, though, added nearly 2.
Coming up on MONEYLINE, after a lengthy search, the Bush administration may have found its man. Details on who may be the next chairman of the SEC, when MONEYLINE continues.
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BAY: After months of searching, the White House has selected a chairman to head up the Securities and Exchange Commission. The administration is expected to nominate Harvey Pitt. Pitt is a known quantity both on Wall Street and in Washington.
Kitty Pilgrim has the story.
(BEGIN VIDEOTAPE) KITTY PILGRIM, CNN CORRESPONDENT (voice-over): It couldn't be a more high profile moment for the nation's top securities regulator, an unusually active era of stock market volatility, globalization and new technology to trade stocks, all make the choice of SEC chairman, critical.
JOHN COFFEE, COLUMBIA UNIVERSITY LAW SCHOOL: In Harvey Pitt they have picked one of the strongest most experienced securities persons and experts in the country, and I think it means the agency is going to have a very powerful, very visible future.
MARK BERGMAN, PAUL, WEISS, RIFKIND: Obviously the interconnectiveness of the markets, trading issues between the United States and the other principle markets of the world will need to be addressed. Insider trading remains an issue.
PILGRIM: Pitt already has a decade of groundwork at the SEC, serving as general counsel in the late 70s, then going into private practice representing such high recognition clients as Ivan Boesky, insurer Lloyds of London, the New York Stock Exchange, major brokerage firms and industry groups often battling the agency he could now head. Yet many think he will keep the individual investor in mind.
MARC LACKRITZ, SECURITIES INDUSTRY ASSOC.: His background and his experience and his perspective on the industry and the developments in the industry and his wide range of representing a lot of different participants will enable him to serve investors really well.
PILGRIM: Pitt's Wall Street experience is key. Arthur Levitt, the longest serving, chairman of the SEC, headed the American Stock Exchange before taking the job. The Wall Street is a tradition for the post, established by Joseph P. Kennedy when he became the first chairman in 1934, in response to the stock market crash of October 1929.
(on camera): And as the markets evolve, Pitt may have to reshape the agency, enforcing the standards he knows so well, in a changing world of global markets trading. Kitty Pilgrim, CNN Financial News, Washington.
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BAY: Once Pitt is officially nominated for the SEC chairman's position, the Senate must confirm his appointment following hearings before the Senate Banking Committee. Republican Senator Phil Gramm, who heads up the Banking Committee has, in the past, expressed reservations about appointing a lawyer to head the SEC.
Up next, the first man to buy his way into space makes an emotional return. Plus, "Ahead Of The Curve," some of what you need to know tonight, ahead of tomorrow's trading. 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 the bell it beat lowered estimates by a penny, but posted its first drop in revenue. More quarterly reports tomorrow from Waste Management and Global Crossing. Plus a read on the nation's spending habits with same-store retail sales for April.
In Washington, the house takes up the 2002 budget resolution including the pared-down tax package. A vote is expected around noon. And California's governor, Gray Davis meets with major energy suppliers tomorrow afternoon in Sacramento. Blackouts were again ordered today in California.
Finally tonight, an emotional moment for the man who's gone where no tourist has gone before. Investment manager Dennis Tito fought NASA to take his trip into space. He reportedly paid his Russian hosts $20 million, to spend eight days in orbit: A grueling ride for a 60-year-old. Today he got choked up talking about his adventure.
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DENNIS TITO, SPACE TOURIST: I guess the most profound moment was when I talked to both -- both of my children.
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BAY: Tito, who returns tomorrow to California, plans to continue promoting space tourism, but he says he will spend his next vacation aboard a decidedly more low tech vehicle: a sailboat.
That's MONEYLINE for this Tuesday. I'm Willow Bay in New York.
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