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Lou Dobbs Moneyline
Firestone Strikes Back
Aired May 31, 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.
LOU DOBBS, HOST: Tonight: Firestone strikes back, urging the government to investigate Ford and possible defects in its popular Explorer.
Wall Street bounces back. The Dow advances and the Nasdaq breaks a three-session losing streak.
And tonight: one-on-one with the world's richest man: Bill Gates on Microsoft's newest product, the antitrust battle and the slowing economy.
ANNOUNCER: From the heart of New York City, this is LOU DOBBS MONEYLINE. Here now, Lou Dobbs.
DOBBS: Good evening. Our top story tonight: Firestone striking back at Ford. The tire-maker today asked the government to investigate what it says are design defects in some models of Ford Explorers. Firestone CEO John Lampe gave the National Highway Traffic Safety Administration a report arguing that the vehicle and not the tires are responsible for hundreds of fatal rollovers. Firestone's offensive coming one week after the company severed a century-long relationship with Ford. Tim O'brien joins us with this late report -- Tim.
TIM O'BRIEN, CNN CORRESPONDENT: Lou, Firestone's claims are based on research by Dennis Guenther, a professor of mechanical engineering at Ohio State. Gunther states the Explorer has an oversteer problem that is not found on other cars he's tested, like the Jeep Cherokee or the Chevy Blazer.
What does he mean by oversteer? Well, Gunther says that's when there's a tread separation on the rear tire on the Explorer, the rear of the vehicle tends to slide out. In his statement Gunther says the following, "Oversteer can make a vehicle directionally unstable and subject to loss of control in the hands of most drivers. This is a vehicle problem, not a tire problem.
And that is quite the opposite of what Ford has been saying ever since the problem first became apparent. Here's Ford CEO Jacques Nasser last September.
(BEGIN VIDEO CLIP)
JACQUES NASSER, CEO FORD: We know that this is a Firestone tire issue, not a vehicle issue.
(END VIDEO CLIP)
O'BRIEN: And Ford had a swift response today to Firestone's request for an investigation of their Explorer. This from John Rintamaki, the chief of staff of the Ford Motor Company, "You can talk about testing endlessly. We are replacing Firestone Wilderness AT tires because they have elevated rates of tread separation in the real world. Real world data also showed the Explorer is among the safest vehicles on the road."
And of course, Lou, this does follow last week's announcement by Ford that they would recall more than 10 million Wilderness A.T. tires. Joan Claybrook, former head of the National Highway Traffic Safety Administration and now with the consumer group Public Citizen, says her former agency, Firestone and Ford can all share the blame.
(BEGIN VIDEO CLIP)
JOAN CLAYBROOK, FMR. HEAD, NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION: I just think that the Department Of Transportation and the companies share the blame here for not having made these vehicles safe for the consumer to drive, for the every day consumer who is suddenly faced with an emergency situation and these vehicles are going out of control.
(END VIDEO CLIP)
O'BRIEN: Firestone says the oversteer problem as identified can be remedied in number of ways: Adjusting the stiffness of the shock absorbers, frame stiffness, weight distribution, tire inflation can also be a factor.
The Department of Transportation has been focusing its investigation more on Firestone tires than on the Ford Explorer. Firestone clearly would like to change that focus. Will the research Firestone today provided the department accomplish that?
Well, a spokesman for the National Highway Transportation Administration was noncommittal, confirming only the obvious: it will consider Firestone's request for an investigation -- Lou.
DOBBS: Tim, thank you. Tim O'Brien from Washington.
Well, Firestone's chief executive officer joins me now live. John Lampe joins me from Washington D.C. John let me start out, you met with the transportation secretary, you delivered this request to NHTSA, what is the reaction?
JOHN LAMPE, CEO, FIRESTONE: Well, we had a good meeting with the secretary and with his staff and with Bob Shelton from NHTSA. We did present them the -- give them the data. It's very very compelling data as a result of Doctor Gunther's test done on the Ford Explorer. And we've asked them to take a look at that data suggest that they initiate an investigation. We understand that they'll need some time to validate the data, to compare whatever data they've got and then proceed with their decision-making process.
DOBBS: John, this is obviously a further escalation in the battle and a very public and ugly battle between your company and Ford. How soon in your best possible scenario could there be a resolution in terms of analyzing the data and having a conclusion from the labor -- from the Transportation Department?
LAMPE: Lou, we hope very quickly. We've said from the very beginning last year that to understand this whole, this whole problem and incident that you have got to look at both the tire and look at the vehicle.
We take full responsibility for our tires. We took the appropriate action last year. We've asked Ford to work with us in understanding the interaction of the tire and the vehicle, the role the vehicle plays. They were unwilling to do that, have been unwilling to do that, and that's when we initiated the testing ourselves, through Doctor Gunther, of the Ford Explorer.
DOBBS: How do you respond to the Ford statement today after you made your request of the Transportation Department saying in part they, Firestone Tires, have elevated rates of tread separation in the real world. Real world data, Ford goes on to say, also show the Explorer is among the safest of vehicles on the road. How do you respond to that?
LAMPE: Lou, our tires are absolutely safe. We took the appropriate action, the right action last year. We've got data that suggests that there is a design defect in the Ford Explorer as it relates to understeer and oversteer which is a very critical thing for driver control of the vehicle. And I think people, once they see that data, will come to the same conclusion.
DOBBS: OK. John Lampe, CEO of Firestone. Thanks for being with us here on MONEYLINE.
LAMPE: Thank you very much, Lou.
DOBBS: Well, on Wall Street today a modest rebound to report in the market. Stock prices gained across the board after yesterday's punishing sell-off. But the enthusiasm today was somewhat restrained. Investors are awaiting news due out at 8:30 Eastern time tomorrow morning. At that time we'll have the latest report on unemployment. Jan Hopkins has the report from the New York Stock Exchange.
(BEGIN VIDEOTAPE)
JAN HOPKINS, CNN CORRESPONDENT (voice-over): Stocks edged higher one day after heavy sealing on worries over earnings. The Dow Industrials closed up 39 points at 10,911, while the Nasdaq ended the day up 26 points or 1.2 percent, making up some of the previous day's losses. MARSHALL ACUFF, SALOMON SMITH BARNEY: I think investors took that as being overdone on a short-term basis. Secondly, indeed, it's the end of the month and typically the last day or two of the month the market does perform somewhat more strongly. So these two factors are having quite a significant impact.
HOPKINS: Technology stocks including Oracle led the rebound. Semiconductors and semiconductor equipment makers also rallied. Despite the day's gains, however, strategists say that investors have not forgotten that companies are having a tough time making money. Preannouncements for the second quarter so far outpace the record number of warnings issued in the same period last quarter, which could keep investors away for at least part of the summer.
ARTHUR CASHIN, UBS PAINE WEBBER: You've got earnings warnings beginning before June even starts. Presumptively they could continue or at least the fear of them could continue to keep people from being motivated until the end of June. Then you've got July and the real earnings that people were worried about being warned about.
HOPKINS: But others think investors are beginning to look ahead.
STUART FREEMAN, AG EDWARDS: We're in that phase right now where the market has already started to turn up, but we're still going through the worst of the economy. You know, we kind of think that the second quarter is going to show some of the toughest comparisons year over year, and yet the market's already bottomed.
(END VIDEOTAPE)
HOPKINS: Even if the market has bottomed investors are not completely convinced the worst is over for the economy. Two key economic reports on manufacturing and employment are due out tomorrow, which could give the market and investors a better picture on the nation's economic health -- Lou
DOBBS: Jan, yesterday, a punishing sell-off in Wall Street. Today, a rebound. Noticeable differences in sentiment there on the floor of the bill -- big board?
HOPKINS: That's right, although we did not close at our highs of the session. So there was a little more enthusiasm earlier in the afternoon than at the close, because investors already were focusing on that report tomorrow morning -- Lou
DOBBS: OK, Jan. Thank you. That unemployment report is easily the most anticipated of the economic reports to be released this week. Investors are struggling to assess whether the economy is deteriorating. The last unemployment report for April showed that payrolls took their biggest plunge since the last recession. And there's some concern that tomorrow's report may suggest even worse. Lisa Leiter has our report from Chicago.
(BEGIN VIDEOTAPE)
LISA LEITER, CNN CORRESPONDENT (voice-over): The great American job machine is falling apart faster than most people expected. Americans are filing for unemployment benefits at a rate not seen since 1993. Help-wanted advertising plunged to an eight-year low in April, while companies announced a record number of job cuts. That has many economists braced for more weakness in the May jobs report.
MICKEY LEVY, BANK OF AMERICA: I expect a third month in a row of employment declines, and another notch up in the unemployment rate. And I think over the next handful of months you can expect the unemployment rate to move up to 5 percent, or maybe even a touch higher.
LEITER: Internet companies announced more than 13,000 job cuts in May alone. But the old economy is suffering too. Manufacturers lost more than a half million jobs in the past year. For workers who still have jobs, average hourly wages have been growing at a faster pace. Companies' unit labor costs rose 5.2 percent in the first quarter, the steepest rise in three years. That's bad news for bond traders worried about inflation. But could be good news for the economy.
DIANE SWONK, BANK ONE: As wages are accelerating even as jobs aren't anymore, the combination of the two means that income in people's pockets is still growing, and as long as you have a consumer with income in their pockets, it's very hard to stop them from spending.
LEITER: The Federal Reserve has been slashing interest rates in part to help keep consumers spending. One concern of economists: how long that spending will hold up, if the jobs picture continues to deteriorate.
Lisa Leiter, CNN financial news, Chicago.
(END VIDEOTAPE)
DOBBS: The spike in weekly jobless claims not the only troubling economic report. Report from Chicago Purchasing Manager shows manufacturers are still in a steep slump. The news sent bonds soaring: the 10-year gaining almost a full point in price. The yield at 5.37 percent tonight. The 30-year gained about 1 1/4 points, and the yield, 5.75 percent.
Taking a look at the 10-year yield since the Fed began cutting interest rates back at the beginning of the year, it's actually gained more than a quarter point. That has been pushing up mortgage rates, which is starting to hurt the housing market: the 30-year mortgage this week rose again, that interest rate is now 7.24 percent.
Still to come on MONEYLINE, Microsoft unveils its latest office upgrade. I'll talk with Bill Gates about the new product and the company's future.
Also, Procter & Gamble's one-stop approach to advertising, an unprecedented multi-million dollar deal with a media powerhouse.
And an about face from convicted Oklahoma city bomber Timothy McVeigh. Stay with us.
(COMMERCIAL BREAK)
DOBBS: In New York today, Bill Gates proceeded with the launch of Microsoft's office XP. This, the first update to the office products in two years. Application software that accounts for about 30 percent of Microsoft's revenue. Taking a look at the stock today, Microsoft shares barely budged. It is up, however, 60 percent so far this year, and that's not bad by any reckoning.
Steve Young is here now with a look at why some say this latest version of office may be difficult to sell -- Steve?
STEVE YOUNG, CNN CORRESPONDENT: Lou, it will be a tough sell because of the weakness in the economy. That, and the feeling many companies have that office XP has a pack of features that don't really enhance productivity and amount to overkill.
(BEGIN VIDEOTAPE)
YOUNG (voice-over): At the monthly poll, Microsoft's Office XP has run up a no sale. The information technology pool at the Web site feels the office version the company now has on 300 desk tops is good enough. The decision based on the belief that investment would not yield productivity gains.
This is hardly alone in turning back on Bill Gates' baby. Analysts say Microsoft will have some success convincing customers using its creaky Office 97 to upgrade, but many businesses with newer versions are likely to take a pass.
ROB ENDERLE, GIGA INFORMATION GROUP: For the most part, they're really worried about other things. Primarily, keeping their employees engaged and not having to lay anybody off. So, it's very tough for them to look at productivity sweets as expenditure option.
YOUNG: Of course, Microsoft has its ways in convincing customers, through changed licensing practices the incentive is upgrade now or pay much more later.
Then there's what one analyst calls creative incapability.
DAN KUSNETSKY, VP SYSTEM SOFTWARE, IDC: If they get some vice president of the sales organization to upgrade to newer pieces of software. And that person starts sending out documents that are incompatible with other members of their organization. They'll upgrade, rather than not be able to read the boss's message.
YOUNG: Office software now accounts for about $8 billion of Microsoft's business. Analysts estimate it could increase its sales to as much as all its productivity competitors combined, if it made a version of Office for the Linux Operating System.
(END VIDEOTAPE)
YOUNG: But analysts say that's not a strategic blunder. It's Microsoft's calculation that it's better to forego $600 million a year than endanger its Windows Operating System franchise -- Lou.
DOBBS: Microsoft hasn't missed on many of those calculations. Steve, thank you very much.
Later, I'll be talking with Microsoft Chairman Bill Gates on this new products, the antitrust fight, and the economic conditions in which a number of new products are being launched by Microsoft.
Coming up, crime and punishment: Timothy McVeigh reconsiders his legal options.
(COMMERCIAL BREAK)
DOBBS: A change of mind today for Timothy McVeigh. Lawyers for the convicted Oklahoma City bomber today filed papers for a stay of execution. McVeigh had previously waived all appeals, and is still scheduled to die on June 11, but his lawyers said he made the decision after the FBI failed to turn over thousands of pages of documents during his trial.
(BEGIN VIDEO CLIP)
ROBERT NIGH, MCVEIGH ATTORNEY: It is upon principal that Mr. McVeigh has decided to seek court relief. And it is based upon the government's failure to produce evidence in his case. He is convinced that the Department of Justice and the FBI will be not otherwise be held to account unless he takes this action.
(END VIDEO CLIP)
DOBBS: Attorney General John Ashcroft vowed to "oppose vigorously" any attempts by McVeigh to overturn his death sentence or seek a new trial or delay his execution.
Also today, accused spy Robert Hanssen pleaded not guilty to charges that he spied for the Soviet Union and Russia during his years at the Federal Bureau of Investigation. Prosecutors and Hanssen's lawyers agreed to set a trial date of October 29.
And a standoff in Idaho dragged on today. Six children have barricaded themselves in their home with guns and some 20 vicious dogs. The children released those dogs on sheriff's deputies after their mother was arrested on felony charges of injuring a child.
And a troubling study out tonight: The Center for Disease Control and Prevention finding gay and bisexual men in their 20s are being infected with HIV, the virus that causes AIDS, at nearly 5 percent a year. If not checked, that trend threatens the enormous progress against the AIDS epidemic, which was first diagnosed 20 years ago this coming week. The level of AIDS infection has dropped dramatically from 160,000 cases in the mid-'80s to the current level of 40,000 cases a year. The financial impact of AIDS has eased as well: the insurance industry paying about $1 1/2 billion a year in AIDS-related claims in the mid '90s. That rate has dropped to less than a billion dollars. Coming up on MONEYLINE, fallout from an impeachment vote in Indonesia. What lies ahead for the world's fifth-most populous nation. That story is next. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Political tensions rising in Indonesia and an impeachment proceeding that threatens to spread economic chaos across Southeast Asia. The Indonesian parliament voted to begin hearings on August 1st to impeach President Wahid, this as the president backed down from threats to seize emergency powers.
Kitty Pilgrim now looks at the economic implications for the country and the region.
(BEGIN VIDEOTAPE)
KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Scenes like these have been common in Indonesia this week. President Wahid, Indonesia's first democratically elected leader, has been threatening to use emergency powers to remain in control. The IMF has canceled a $400 million loan to the country, and many fear if the violence increases, the country's financial problems will spill into the rest of Southeast Asia.
Western investment is at a standstill.
ROBERT HORMATS, GOLDMAN SACHS INTERNATIONAL: Virtually no new investment is taking place in Indonesia at this point. A lot of the big investments that were contemplated, I think, are on hold. Some companies are leaving. Most people are waiting to see how the situation resolves itself before making new, big capital commitments.
PILGRIM: ExxonMobil has been forced to close its large-scale liquid natural gas operation in the province of Aceh last month because of attacks on its workers. The company says it will stay closed indefinitely until the violence subsides. Financial analysts worry that with increased conflict the region's growth will slow, currencies will plummet.
JOYCE CHANG, J.P. MORGAN: You can see a spillover effect extend to the Southeast Asian countries, including Thailand, including Singapore, and also perhaps including Malaysia and the Philippines.
PILGRIM: Much of Asia's supply of oil and natural gas passes through the Indonesian shipping lanes in the straights of Malacca.
MICHAEL KURTZ, IDEAGLOBAL: Indonesia as a sprawling archipelago sits astride key sea lanes in the region, though which, for example, all of the oil to Taiwan, to South Korea and to Japan, the key industrial economies of Asia, flows. So Indonesia is very important to the region.
(END VIDEOTAPE)
PILGRIM: Indonesia is the world's fifth-most populous country, some worry in the event of extreme unrest there could be emigration to neighboring countries of Malaysia, Singapore or Australia -- Lou.
DOBBS: Any suggestion from ExxonMobil when they might return.
PILGRIM: I spoke to ExxonMobil, and they said they're monitoring the situation, but they had such problems with attacks on their employees that they don't have any date that they'll be going back in.
DOBBS: So it's more about economics than political unrest at this juncture.
PILGRIM: Certainly is.
DOBBS: Kitty, thank you.
Well, Indonesia is also the only Asian member of OPEC, but oil markets today weren't focussed on Indonesia but rather Iraq. Light sweet crude oil posted a late comeback, ending down just 18 cents, settling at $28.37 a barrel, that after heavy losses earlier in the day. The rebound coming on more fears that Iraq will again halt exports in response to U.N. policy on sanctions.
Oil prices lower along with commodity prices in general. The CRB index has now fallen for eight-straight days, down nearly 10 percent so far this year.
Coming up next, a landmark advertising deal connecting a host of household products to a powerful name in media, and Bill Gates, his latest software and his view of the future for Microsoft.
(COMMERCIAL BREAK)
DOBBS: Our top stories tonight: stock prices bouncing back after yesterday's slide. The Dow up slightly, the Nasdaq up more than 1 percent today. That gain after three-straight losing sessions.
Firestone pushing for a federal investigation of the Ford Explorer. Firestone says that design flaws in the SUV led to a series of fatal rollovers. And just moments ago I talked with tire-maker CEO John Lampe. Lampe told us his company has uncovered important information about the Ford Explorer.
(BEGIN VIDEO CLIP)
JOHN LAMPE, CEO, BRIDGESTONE/FIRESTONE: We have data that suggests that there is a designed defect in the Ford Explorer as relates to understeer and oversteer, which is a very critical thing for driver control of the vehicle.
(END VIDEO CLIP)
DOBBS: Also today, a major marketing and advertising deal between consumer giant Procter & Gamble and Viacom. Under the agreement, Procter & Gamble will advertise across all Viacom television outlets, a group that ranges from the CBS Network, of course, to music networks MTV and VH-1. The value of the deal placed at $300 million. Peter Viles joins me now and has a report for us.
Three hundred million -- this is a major deal.
PETER VILES, CNN CORRESPONDENT: It is a major deal, but Procter & Gamble spends roughly a billion dollars a year on national television. So it's not as if Viacom has the company locked up. But this deal does give Viacom a huge head start in what is a very tough ad market.
(BEGIN VIDEOTAPE)
VILES (voice-over): The mantra behind this merger and others was that bigger is better, and today Viacom demonstrated why: a blockbuster one-stop shopping deal under which Procter & Gamble -- and brands such as Crest, Ivory Folger's, Tide, and Jiff -- will advertise on Viacom's 12 TV networks, including CBS, Nickelodeon and MTV. The estimated value of the one-year deal, $300 million.
SCOTT DONATON, ADVERTISING AGE: This is absolutely the holy grail of been media consolidation, and the funny thing is that as these deals have done in the last few years, most of the deals have been $10 million, $20 million.
VILES: It is just the kind of deal Disney and AOL Time-Warner, the parent of CNN, have been working toward. But of the three, Viacom is by far the most dependent on advertising: 66 percent of its revenue. Disney gets 39 percent from ads. AOL Time Warner just 28 percent.
FRED MORAN, JEFFERIES & CO.: We were all surprised that this deal came at the time it did in probably the weakest period for advertising that we've seen in years. To come out with a deal of this magnitude in this kind of market environment is just astounding.
VILES: Much of the credit goes to Viacom's hard-nosed president, Mel Karmazin, who does not tolerate the corporate infighting that often sabotages mergers.
LISA MCCARTHY, SENIOR VICE PRESIDENT, VIACOM: All the divisions report to him. The level of commitment and cooperation is amazing. As he would say it's not really a democracy. You can only buy stock in Viacom. You can't buy stock in CBS or MTV or VH-1.
(END VIDEOTAPE)
VILES: Viacom insists it did not give P&G a break on price, but it will give the company preferential treatment when it comes to sponsorship opportunities and will also share valuable viewer research. Viacom, for example, is considered an authority on teenagers because of the popularity of MTV -- Lou.
DOBBS: No break on price, but in this market I wonder what a break in price would be anyway.
VILES: No break on price, but favors, yes. DOBBS: Pete, thank you very much.
Well, it was a solid day on Wall Street for Viacom shares. Shares finishing higher, up more than $2. Procter & Gamble shares down fractionally on the day.
Some of the day's other big movers in the market: Costco gaining more than $1 1/2 a share, meeting Wall Street expectations. Still, a third of Costco shares are in California and soaring energy costs in that state forced profits down by 12 percent.
Plug Power up about 16 percent on news that GM executive Mark Schmitz has taken the reins as chief financial officer. Plug Power makes fuel cells, an alternative to power cars.
And the biggest loser on the Nasdaq today, CEC Entertainment, losing more than $10 1/2 a share. The owner of Chuck E. Cheese pizza houses warned its full-year results will fall short, and the reason: high utility and cheese prices.
Despite today's loss, the stock has nearly doubled over the past year.
In other corporate news, shares of Xerox climbing, that after KPMG found no fraud at the copier company. The audit concluded that Xerox did not comply with generally accepted accounting practices, but auditors found no "fictitious transactions." Shares of Xerox finishing the day higher, up 88 cents, gaining just about 10 percent on the day.
And a creative move by General Motors to raise demand. GM will allow its customers to cut short their leases if they plan on leasing or buying a new vehicle. That offer to begin Friday. Shares of GM up 79 cents a day.
Still ahead, letting loose: the latest product doing battle in the high-stakes software business.
(COMMERCIAL BREAK)
DOBBS: Microsoft today debuting its update of Office. It's called Office XP. It's the first in an unprecedented roll-out of new products expected this year from the company. The challenge of promoting these products comes at a complicated time for Microsoft: the court of appeals expected to rule any day now on the company's challenge to the break-up order.
Bill Gates and I sat down earlier today, and I asked him just how important the launch of Office XP is to Microsoft.
(BEGIN VIDEOTAPE)
BILL GATES, CHAIRMAN, MICROSOFT: Well, Office XP is a very important introduction for us. This is the most-used piece of application software that exists on the planet. Hundreds of millions of people spend 10 to 20 hours a week creating documents, doing electronic mail, all the different functions we have here. So showing people that we can expand what Office is about and make people more effective, that's critical to our future. And this version will help us this year, but it's also key for Office as one of the two big Microsoft businesses.
DOBBS: Nearly all the critics say that this introduction of Office XP brings with it a series of enhancements -- they acknowledge that -- and at the same time they're saying that they've got to take a wait-and-see attitude, because there has been considerably a tepid response at this point versus previous introductions. Are you seeing that?
GATES: Actually this -- we have the strongest response to this new version of any version we've had for the last six years. People here see how we've broken down the barriers between Office and the Internet, they see what we've done for collaboration, and for everyone, out of the 50 or 60 major new features, they see three or four that for them alone would make all the difference.
And so the knowledge worker excitement, that bottoms-up activity that has been the key to the PC since it got started, we've got that here in a very big way.
DOBBS: Now, in terms of this year with Office XP, the number of -- Windows XP in October, a number of other products you're introducing, a lot of buzz about it. But it's also coming for Microsoft and for the industry at a time when the industry is plagued with economic challenges. Could this be a case of bad timing, unfortunate timing?
GATES: Well, in a sense, you can say it's very good timing. You know, what's going to drive the PC industry to new record levels? It's having software that shows off the latest hardware and reminds people that this is the digital decade. This is the time when music, photos, business processes, meetings, all of those things can be enhanced by using the personal computer. So we think the timing is going to work out just great.
DOBBS: And the impact on your bottom line for this introduction. Give us your best judgment.
GATES: Well, the thing that really drives growth at Microsoft is new advances in Windows and new advances in Office. We have a lot of other businesses that will grow very fast, but compared to those two key businesses, they're small enough that we really have to drive the innovation in these products. And that's why this is such a big year: Windows XP shipping in the fall, Office XP shipping today, the two flagships. And you know, all the build-up around them makes us very optimistic about this year.
DOBBS: Well, you've got some basis for optimism. Your first quarter, you beat Wall Street estimates in terms of both revenue and your bottom line. You maintained a 38 percent margin versus -- about three points better than that for all of 2000. Do you think you're going to be able to build those margins from that level? GATES: Well, we're subject to the changes in the economy, particularly capital spending, like a lot of tech firms. We're not as exposed to particular sectors like start-ups in telecommunications, because our sales have always been very broad: not just on an industry basis but on a geographical basis. Asia has been surprisingly strong for us. Europe continues to be solid. And even in the U.S., I'd say that out of what we were able to achieve in the first quarter, we're cautiously optimistic.
Microsoft more than any firm, I think, has always been conservative in talking about what the financial future is while we share our enthusiasm for the great software products we're doing.
DOBBS: Well, I know you're chief software architect, but it still says chairman next to your name. You've got about $30 billion in cash. You're generating a tremendous margin, even in these difficult times for the industry. Your strategy going forward? Acquisitions going to play a big role?
GATES: Well, acquisitions have helped Microsoft accelerate its development: major things like buying Great Plains -- it's a business application provider. That's a major new strategy for us, and bringing their expertise together with ours, that will be a new source of growth.
We also often will see start-ups that are pursuing new approaches and bring that in to our overall development activities.
So acquisitions, absolutely. Share buyback has been another way that we've used the cash that we've generated. And simply being conservative. You know, we believe in the long-run approach, and part of the reason we can do that is that we've never been aggressive in terms of, you know, how we make sure we've got a solid balance sheet.
DOBBS: Well, with a solid balance sheet, with an array of products that you're introducing, and sitting here waiting for the appellate court to rule on your appeal, how do you think that is going to go?
GATES: Well, I won't guess what's going to come out of that. It is likely to come in the next few months. We were pleased with the general points that the appeals court made. In the past they've upheld this principle of innovation, that good products can have new features added. And so we'll have to see what comes out of that. You know, we felt it was a very good hearing.
DOBBS: Would you describe yourself -- as you looked at the economy, you used the expression "cautiously optimistic" -- would you say the same of the legal environment?
GATES: From the beginning, Microsoft has been cautiously optimistic. We felt that in the end the right to innovate had to be upheld. It has every time the courts have looked at these issues, in many, many contexts over many, many decades. And it's, you know, part of what's made the United States such a leader. So yes our faith in that process has allowed us to focus on building new products as the legal process went on. That's why we've got Office XP, coming out now and Windows XP later this year.
DOBBS: And you're still pitching hard as chief software architect, and still chairman. Bill, good to have you with us.
GATES: Thanks.
(END VIDEOTAPE)
DOBBS: It's been a rough 12 months for Microsoft's stock, but it's been a beautiful 2001: Microsoft shares up 60 percent so far this year, and it is by far and away the best performing Dow stock of 2001.
Straight ahead, one Internet company has another chance at survival. That story is next. Stay with us.
(COMMERCIAL BREAK)
DOBBS: Not only were major indexes higher today, but Internet stocks snapped a 3 day losing streak as well. The Goldman Sachs Internet Index up 4 percent on the day. One driver of that upswing: StarMedia. BellSouth breathing life into the popular Hispanic portal with a $25 million cash infusion. That's a huge coup for StarMedia, which has laid off 40 percent of its workforce, and is desperately struggling to turn its first profit by early next year.
The deal also highlights an area of enormous growth, and optimism, for Internet companies. According to Media Metrix, Internet use in Latin America is growing exponentially, and expected to reach 77 million people, that's 18 percent of the region's total population, within the next four years. StarMedia shares up almost 40 percent on today's news, and taking with it some well-known names as well.
Coming up on MONEYLINE, after a fairly quiet month for the markets, what's in store for June? Some perspective from three bullish money managers. We continue in a moment. Stay with us.
(COMMERCIAL BREAK)
DOBBS: A rebound on Wall Street today, with technology stocks ending a three-day slide. As we close out the month of May, not much action after a powerhouse April. The Dow added 177 points, or just over 1.5 percent. For the Nasdaq, it was another down month, but just barely. It fell just over 5 points. Year to date, the Nasdaq is down 16 percent.
Joining me now to talk about where these markets may be headed in the months ahead is Gregg Hymowitz, money manager at Entrust Capital; Gary Kaminsky, he is managing director at Neuberger Berman; and Seth Tobias, money manager at Circle T. Partners.
I like that name, Circle T. Partners. Where did you come up with that name?
(CROSSTALK)
DOBBS: It kind of takes me back to my Western roots.
SETH TOBIAS, CIRCLE T. PARTNERS: It is a ranch down in Texas, although it is not my ranch.
DOBBS: Well, you are young yet, you could get it done.
Where do you think this market is headed?
TOBIAS: I think the market in the near term could be in a little bit of a sideways pattern. Right now, we're in the beginning stages of the negative earnings surprise season and that probably will take place over the next several weeks. And I think that is the fear factor that's building into the market.
Beyond that, I think as we move through the end of the second quarter and into the third quarter, I'd find that we will stabilize and start to move higher towards year end.
DOBBS: You agree with that, Gary?
GARY KAMINSKY, NEUBERGER BERMAN: Well, we really look at companies. We don't look at the market overall. I'm a believer in interest rates. I'm a believer that this Fed is determined to make the economy move, and whether it is 6 months from now or a year from today, there will be a rebound, but there will be companies that will prosper, even if the economy as a whole, really doesn't rebound till next year.
DOBBS: And that is in the way you are driving your strategy?
KAMINSKY: Absolutely, we look for stocks. We really don't try to play the market as a whole. We really look at companies, fundamentals, companies that have been -- grow, no matter what happens to the overall economy.
DOBBS: You mentioned interest rates. At this point, you have to be fairly bullish, giving the direction the Fed is taken.
KAMINSKY: Absolutely. The Fed has made a very loud statement here. Clearly, as loud as they've done in the last 10 years, in terms of where they want the direction to go. And they are determined to make this economy rebound.
DOBBS: Do you think 250 basis points is adequate?
KAMINSKY: Well, again, we are in a recession period that has not been tested before. What we are seeing right now, this inventory correction technology, is unknown chartered territories, and that is why we are all sort of experimenting at the same time, including Alan Greenspan.
DOBBS: Well, I know, Gregg, you are not experimenting. You know precisely how it is working out. GREGG HYMOWITZ, ENTRUST CAPITAL: Yes, I wish I did. Look, I think interest rates (UNINTELLIGIBLE), I think the Fed moves another 50 basis points, and picking up (UNINTELLIGIBLE). I actually don't think that the earrings preannouncement season is going to be as bad as everyone thinks it's going to be.
I think companies were pretty conservative, I think they brought down their numbers, they realized things weren't going to bounce back as quickly, and I think the silver lining possibly in June, is, yes, you have a Sun negative call, but you may not get as many as everyone thinks you are going to get.
I think Street expectations are that we may see another triple dip into the economy again. And therefore, if you don't get that and you don't get a lot of preannouncements, everyone was concerned today, that Oracle was going to preannounce, if you don't get these things, that may give you some positive momentum.
Plus, I do think you are going to see continued Fed decreases.
DOBBS: Is that, gentlemen, possibly a suggestion of concern when a positive is not having a warning issued?
TOBIAS: Absolutely, I think that in this type of environment, and -- if you go back to the first quarter, certainly, there was an expectation that there would be negative announcements. But the real fear was that the visibility became zero. And I think as we move into -- into second -- into the second quarter announcements, the expectation now is that there will be literally thousands of preannouncements. And if we don't get the magnitude of announcements that we expect, that could be a net positive.
HYMOWITZ: I don't think a lack of negative news is necessarily a negative, you know, the stock market going up. Look, the bottom line is, things have to bottom before you turn up, and I think that is what everyone is looking for. They're looking for some stabilization. On the Sun call the other day, you had a positive silver lining in that was the CFO said look, U.S. has stabilized. Europe is slightly behind. The ECB is slightly behind the Fed.
You need to see that bottoming process. Once you see that, then I think stocks can move ahead, and remember, stocks always lead the economy by roughly 6 to 7 months. So, you can't wait to see the earnings uptick to invest in stocks. You have to be out in front of that.
KAMINSKY: In addition, when we all started doing what we are doing 12, 13 years ago, we weren't in this reg FD environment. It's very important to remember that companies don't want to give guidance the way they did 10 years ago, so even if they think they see things getting better, see things bottoming out in this reg FD environment, they are going to be very careful not to give any guidance, unless they have very, very clear visibility. And so that is something that we didn't deal with, even as recently as two years ago.
TOBIAS: I wanted to touch on a point Gregg brought up about Europe, and the interesting thing about Europe is, you know, a couple of months ago, the fear was that Europe would roll over. Now we are seeing the reality of Europe rolling over, and Europe is 6 to 9 months behind us.
So, if the U.S. stabilizes over the next six months, we'll get the stabilization and then the uptick in Europe in 2002. So maybe that sets the stage for a very healthy market as we move through the end of this year and into the next.
DOBBS: Can you all agree on that point?
HYMOWITZ: I will agree on that point.
DOBBS: All right, terms of visibility, this word "visibility" -- we have about 30 seconds, this word "visibility" is something that I'm frankly getting very tired of hearing. It is a new coinage. Can somebody tell me about how visibility is going...
HYMOWITZ: If you want, I'll take a crack at that. This is very simply -- I understand it very well now, what it means is that no matter what your company is, you are the sales force out there that's inputting data into their sales force automation software. It lists how many deals they have to go, what's the probability that deal closes, and over what period of time.
They get this information off the CFO, and the CFO looks at it and says OK, I got visibility. What happens is, when the stock market is going down, no one has any confidence, the CFO says, I don't believe this stuff, I have no visibility. Once the stock market starts going -- getting higher again, and once confidence seeps backs into the system, visibility will come back very quickly.
DOBBS: And Gary's concerns about reg FD will mitigate...
KAMINSKY: Well, the whole point is that visibility is the word that gives the CFO the ability to go home and sleep at night, because he says, I don't have the visibility, I can't look at the pipeline.
(LAUGHTER)
Visibility is directly correlated to reg FD.
DOBBS: Gentlemen, great to have you with us. Thanks very much.
Coming up next -- we will go to the "Head of the Curve. Stay with us.
(COMMERCIAL BREAK)
A key read on the economy. Out tomorrow, the unemployment report for the month of May. Economists say the unemployment rate may rise to 4.6 percent, we'll see. More on the economy tomorrow. The NAPM construction spending, auto sales, all to be reported.
Finally tonight, the makers of SPAM are giving way to the forces of pop culture in the digital age. Hormel foods, which makes the canned meat, is pulling back on its efforts to stop the word "spam" from being used to describe junk e-mail. After years of vigorously defending the brand, Hormel now says it has no beef with the alternate meaning. But is has one request: When describing SPAM, the meat, please use capital letters; the e-mail, please use lowercase.
Thank you. That's MONEYLINE for this Thursday. I'm Lou Dobbs. "CROSSFIRE" is next.
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