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Lou Dobbs Moneyline

Dow Declines 47.75 to 10,229.15; Nasdaq Tumbles 17.04 to 1,842.97; Cisco Reorganizing Into 11 Technology Groups

Aired August 23, 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.
ANNOUNCER: From the heart of New York City, this is LOU DOBBS MONEYLINE. Sitting in tonight, Jan Hopkins.

JAN HOPKINS, CNN ANCHOR: Good evening. In tonight's headlines: Cisco Systems is restructuring into 11 technology groups, and CEO John Chambers says there are signs that business is stabilizing.

A modest retreat on Wall Street, stocks fall after yesterday's strong rally.

And the government reports the total number of people receiving unemployment rose to more than 3 million. That's the highest level since 1992.

Let's check in with our reporters to see what they're working on tonight, beginning with Fred Katayama -- Fred?

FRED KATAYAMA, CNN CORRESPONDENT: A late day surprise, Jan, from Cisco. The company is reorganizing and offering some hopeful hints about the future.

STEVE YOUNG, CNN CORRESPONDENT: Lucent offers a lame near-term outlook but says: "Just you wait until 2003."

KITTY PILGRIM, CNN CORRESPONDENT: A federal investigation into the health care sector looks into Medicare and Medicaid fraud. Some of the biggest names in the industry are involved.

ALLAN CHERNOFF, CNN CORRESPONDENT: Corporate America's mountain of high-yield debt is crumbling. We'll tell you about a new record high in defaults and downgrades, and remind you why they call those bonds "junk."

HOPKINS: Thanks, Allan. Those stories are coming up on MONEYLINE.

We begin tonight with after-the-bell news from Cisco Systems. The network equipment maker said it would separate into 11 technology groups, and CEO John Chambers voiced some cautious optimism about the future. It was just three weeks ago when Cisco warned of continuing weakness in the U.S. and Asian markets. Fred Katayama is here to sort out the company's outlook now.

So things have changed in three weeks?

KATAYAMA: They are changing, Jan. Cisco is announcing its biggest management overhaul in four years. It's eliminating its telecom unit and the executive who headed that telecom business, Kevin Kennedy, is resigning. The networking company is eliminating two other divisions as well, those that served large and small businesses. In its place, it's forming 11 technology groups, all headed by one person, Mario Mazola, an eight-year veteran who formerly oversaw business ventures. The company says it's doing this to get closer to customers whose needs, it says, are changing.

Now, currently, if a large corporation wanted to get information about, say, a wireless product, Cisco would have to turn to a different business unit. But under the new structure, engineering and technology would be centralized under one roof, under one boss. So all groups would have access to all the technical information, helping the company serve its clients better.

One analyst said that this move is not really a restructuring, but rather a reorganization. It will have no financial impact, since it doesn't involve any charges or layoffs, although chief executive John Chambers said he hasn't ruled out attrition.

Chambers also comforted investors when he said that he sees signs that business is stabilizing. He reaffirms his earlier guidance to analysts, saying that orders for the first few weeks of this quarter are in line with expectations. Cisco stock is rising sharply in after-hours trading, and analysts say the stock is reacting more to Chambers' comment about the business than his overhaul plans -- Jan?

HOPKINS: Because he's made such amazing comments about what's going on, you know, things falling off sharply, you know, running against a wall, and now stabilizing. That's a big difference.

KATAYAMA: Right, Jan. In a climate when all you heard was bad news, investors are willing to hear anything hopeful, and this is the most hopeful sign from Cisco in some time.

HOPKINS: Thanks, Fred Katayama.

And as Fred told us, shares of Cisco are getting a boost in heavy after-hours trading tonight. So let's's go to the Instinet trading desk and check in with Jennifer Westhoven. She can tell us about it -- Jennifer?

JENNIFER WESTHOVEN, CNN CORRESPONDENT: Thanks, Jan. And Cisco shares aren't stabilizing. They really haven't settled on a price. Every time I check this stock, it goes higher and higher. At last check, up 97 cents at 17.73. That is a gain of nearly 6 percent on heavy volume. Chip stocks, especially those that make the chips that work in big networks, getting big gains. So we see Applied Microcircuits, PMC Sierra and Vitesse, up sharply. And Juniper Networks, a Cisco rival, that stock is up about 8 percent. More importantly, the QQQs, which tell us a bit about sentiment for big tech Nasdaq stocks, up about 2 percent. That could bode well for tomorrow's Nasdaq opening -- Jan. HOPKINS: Thanks, Jennifer Westhoven.

During the regular session, stocks drifted for most of the day, but they turned lower in the final two hours of trading. Christine Romans is at the New York Stock Exchange -- Christine?

CHRISTINE ROMANS, CNN CORRESPONDENT: Jan, it was hardly a dramatic trading day on Wall Street here today. A down day, really drifting and directionless overall. The Dow Jones Industrial Average losing 47 points to close at 10,229. Now, traders are telling me you can't gauge much from the averages. You've got to look inside some of the sectors, and today they were watching the home building stocks, really a fire under this one. Toll Brothers came out, it makes luxury homes, its profit up 60 percent in the quarter, its revenue up 26 percent, and positive comments there overall about the future of the housing sector, at least in the high end, and other names going higher as well.

Meanwhile, some household names, though, making new 52-week lows. Take a look at Qwest. Active trading here today, under pressure, down about 7 percent today. Gateway, a debt downgrade hurting that one. Limited and lots of other retailers getting hurt today. And U.S. Airways under pressure, hitting a new 52-week low there, as soft business in the airline sectors continues to be felt on Wall Street.

So, Jan, a couple of bright spots, Procter & Gamble and Coke, but it was light volume here today. Not even a billion shares.

HOPKINS: Maybe the Cisco news will help tomorrow. Thanks.

The Nasdaq today fell twice as much as the Dow in percentage terms. Jennifer Rogers is at the Nasdaq marketsite -- Jen?

JEN ROGERS, CNN CORRESPONDENT: Hi, there, Jan. Well, the story here really is that we didn't have follow-through on that rally that we had yesterday here at the Nasdaq. If you take a look at the intraday chart, we were actually in positive territory for a good part of the day, but the selling really picked after 2:00. We started to lose ground. Volume coming in. We closed at our lows for the session, a level 1,842, that was down 17 points, just shy of 1 percent.

We really saw weakness across the board, but one bright spot: biotech stocks. The AMEX biotechnology index, climbing for the second straight day, up more than 4 percent. Check out some of these winners, a very volatile sector, the biotechs. And some of these are at depressed levels. Investors coming in here, PDLI, a protein design lab, up more than 10 percent.

So what's going on? One analyst we talked to said that investors may be getting into these stocks ahead of September. Now, September not usually a great time for the market overall, but biotechs, the new cycle seems to pick up for them and some of them get a bounce here. So maybe investors coming in at these low levels right now, hoping for that bounce in September. Back to you, Jan.

HOPKINS: Thanks, Jen Rogers, at Nasdaq.

Troubling investors today: reports that merely complicate the debate over the future of the economy. Peter Viles has that story.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): It was a day of what economists call two-handed news: mixed readings on the economy that don't really advance the debate over which direction it's headed. News that 393,000 Americans filed first-time jobless claims in the week ending August 18th. That's a rise of 8,000, pushing the four- week moving average above 378,000. On the one hand, all of those numbers were higher in early July. It's possible layoffs have peaked. On the other hand, the total number of Americans now drawing jobless benefits hit 3.2 million. That is a nine-year high.

HEATHER BOUSHEY, ECONOMIC POLICY INSTITUTE: I think it is relevant that the absolute number is at a nine-year high, because it tells us that not this many people have been unemployed and looking for work in a very long time.

VILES: A new survey of 33 economists by the Philadelphia Fed showed a ratcheting back of growth forecasts, dropping current year forecasts from 2.3 percent growth to 1.7 percent. And next year's forecast, from 2.8 percent to 2.6. The White House now beginning to look bullish, forecasts growth at 3.2 percent. Economists are bracing for a possible negative reading on second quarter GDP next week, some readying arguments that a negative reading isn't necessarily bad news.

DIANE SWONK, BANK ONE: That won't mean we're in a recession. It will go down because we're going to be seeing something like $40 billion in inventories during the second quarter, which, from the commerce perspective, is actually great news for later in the year.

VILES: The other ripple of news in the market: minutes from the FOMC's June meeting, revealing the vote then to cut interest rates was nine to one, with William Poole of the St. Louis Fed dissenting, believing the Fed had already gone far enough.

A second regional Fed president, Thomas Hoenig of Kansas City, had dissented in May.

(END VIDEOTAPE)

VILES: Now, looking forward to that revised GDP number next week, there is a lot of talk a number that would show a shrinking economy. Now, that would not necessarily mean a recession. The economy did contract very briefly in early 1993, no recession there. But that is the only example of negative GDP, outside of recession, in the past 34 years, Jan.

HOPKINS: Thanks, Peter.

The slowing economy, of course, has gone hand in hand with a stock market in decline. The S&P is currently down 12 percent this year. But my first guest tonight manages a fund that is up 10 percent in 2001.

John Rogers of Ariel Funds joins us now from Chicago.

Welcome, John. You're a value investor. That's part of the reason that you've done well picking stocks. But let me ask you about the growth sector and this news from Cisco that perhaps business is stabilizing. Does that help the market overall?

JOHN ROGERS, ARIEL MUTUAL FUNDS: I think it will be a temporary help for the market. But I think that this is just maybe a false rally that's occurring this afternoon, And we'll get back to the sort of more negative tone in the next several weeks.

HOPKINS: Now, your motto is slow and steady wins the race. What do you mean?

ROGERS: Well, we've always had a tortoise as our logo in the 19 years now that we've been in business. And we believe that patience truly wins. You stick with a company for the long-term, you take your time doing your homework, and if you just find these good, quality, solid companies, they ultimately win out and outperform the fast growers, the rabbit-type companies.

HOPKINS: And that's really what your message is to investors in this kind of climate?

ROGERS: That's what we tell people all the time. It's funny. Recently, a lot of people are saying, you know, I'm coming back to that turtle theme and I'm going to join the turtle mutual fund family because they've realized that chasing the ups and downs of the hot tech market ultimately isn't a winning strategy.

HOPKINS: Also, you say that the small companies tend to ride out these difficult times better.

ROGERS: We really do believe that. We think small companies are more nimble and they have a chance to grow 12, 15 percent a year consistently. And that they really are the kind of -- you can really get in and do the homework and make a difference with original, creative research, with the smaller companies.

HOPKINS: Does the leadership of a company really make the difference?

ROGERS: We think it truly does. We think management is very, very important, especially in smaller companies. We want to know everything we can about the histories of the people that run the companies that we invest in.

HOPKINS: So give us some examples of some of the companies that you are invested in and that you still like?

ROGERS: Currently, our largest position is Lee Enterprises, which is a large newspaper chain based here in the Midwest. They own a lot small town newspapers where people still read the newspapers every morning and get their local sports and their local information. We think that's a terrific, terrific company.

Also, we have a big position now in ServiceMaster, that provides services for homeowners throughout the United States, everything from getting your lawns cut to having maids come in and clean the house and making sure the plumbing is going fine.

HOPKINS: McCormick is another one, that's a spice company. Do people tend to buy spices, regardless of what's going on in the economy?

ROGERS: We really think that McCormick has a great brand, a great franchise, and it does well when times are tough and people are eating at home more and they want to spice up their foods. McCormick, really, the only game in town.

HOPKINS: And Hasbro? People buy toys regardless?

ROGERS: We think so, but especially this year, because Hasbro is coming off of a very difficult time, but now they've got the rights to the toys that come from the Harry Potter movie and some of the card games that will be involved with that, the trading card games that will be involved with Harry Potter. Plus, of course, the new "Star Wars" movie will be coming out next spring and Hasbro has a great license agreement with "Star Wars."

HOPKINS: Thanks very much. John Rogers of Ariel Mutual Funds, joining us from Chicago.

Lucent Technologies delivered some mixed news to analysts today. The company officials updated their plans on job cuts. Also talked about how Lucent will improve its profits by focusing on its best customers.

Steve Young has our story.

(BEGIN VIDEOTAPE)

YOUNG (voice-over): Lucent, which is racing to shrink its work force by more than half, says it expects overall industry revenues will shrink next year as well by as much as 5 to 10 percent. And the struggling company says its market will stay flat in 2002.

But it sees the market coming back in 2003, not with wild and woolly growth rates, but a more traditional 10 to 15 percent upward pace.

KENNETH LEON, ABN AMRO: Lucent management has much better control of their business and where their opportunities are. That's a dramatic difference from even a quarter ago.

YOUNG: The company told analysts a slimmer Lucent will lavish its attention on its 30 best customers that account for three quarters of its sales.

MICHAEL CRISTINZIANO, GERARD KLAUER MATTISON: That's the right strategy for Lucent. Not only do they have 30 big customers, which not every telecom equipment vender can say, those are the customers that will be the survivors.

YOUNG: It hopes to pump its profit margins from around 15 percent now, to 25 or even 35 percent by 2003. Lucent painfully stubbed its toe by being late to market with a new generation of optical networking gear. In some good news, a research company says for the first time in ages, Lucent was back in first place in the second quarter.

SHIN UMEDA, DELL'ORO GROUP: We saw Lucent with 22 percent share. They are the leader in that space, ahead of Nortel and Alcatel. So that was the first quarter that Lucent has been No. 1, and actually, the first quarter that Nortel was not No. 1 since the beginning of 1999.

(END VIDEOTAPE)

YOUNG: Umeda foresees a much tighter battle in optical networking, in which the front runner could change from quarter to quarter -- Jan.

HOPKINS: Lucent stock didn't do very much?

YOUNG: No, it's down a little bit.

HOPKINS: So, it's a long time before this company recovers.

YOUNG: Patience, patience.

HOPKINS: That's the theme tonight. Thanks, Steve.

Coming up next on MONEYLINE: call it the corporate credit crunch. More companies default on loans. We'll tell you how bad things are.

Then, another shark attack at a popular Florida beach. We'll tell you what happened.

And no Powerball winner last night. That's good news for dreamers, but not for one city. We'll have all of that and more, straight ahead.

(COMMERCIAL BREAK)

HOPKINS: Most of us carry a little debt, some more than others, and corporate America is no exception. Not a problem when times are good, but when times are bad, as they are now, that debt load can lead to bigger problems down the road.

Allan Chernoff has the story.

(BEGIN VIDEOTAPE)

CHERNOFF (voice-over): The collapse in telecom spending, along with the economic slowdown, are combining to remind investors why high-yielding, high-risk bonds are called "junk."

Though it's only August, corporate bond defaults have already hit a new annual record. One-hundred and eight companies, $62.3 billion in debt.

JOHN PUCHULLA, MOODY'S INVESTOR SERVICE: Right now, corporate credit quality is weakening considerably, largely because of the downturn in corporate earnings. The significant drop in cash flows and revenues that companies have suffered this year.

CHERNOFF: Nowhere has that drop been more dramatic than in telecommunications. One out of every five defaults has been in the telecom sector. As equipment spending has dried to a trickle and growth in high-speed Internet access has slowed, there have been more than $23 billion in bond defaults, a one-year record for any industry.

Though the pain has spread among many other sectors as well, including finance, forest and paper products, as well as consumer product companies like Polaroid. Yesterday, Standard & Poor's lowered Gateway's credit rating to junk status, though the company currently has no publicly traded bonds. Still, Gateway becomes the latest fallen angel. Companies that have lost their investment-grade rating, 38 companies representing $40.5 billion in credit, a record, up from $35 billion last year. And the telecom and technology slump is likely to add to the total.

MARY TOLL-REED, HIGH TECH RATINGS GROUP: Obviously, the industry is in a downturn and that has varying impacts, depending what sectors the companies specifically participate in. Those companies that participate in software and services typically are less impacted than those that participate in the hardware and the distribution segments.

(END VIDEOTAPE)

CHERNOFF: A very broad list of companies are only one step away from junk bond status, including Northrop Grumman, Tommy Hilfiger, Xerox, Delta Airlines and AMR, parent of American Airlines -- Jan.

HOPKINS: But so many strategists say, buy junk bonds. With this default rate, it doesn't sound like a great investment.

CHERNOFF: Well, you get what you pay for. No question about it, the risk is much higher. A lot of strategists also have been telling investors put your money in the stock market since the beginning of the year. It hasn't always paid off for most people.

HOPKINS: Thanks, Allan.

The Pentagon may be digging in for a showdown with Congress over dollars. Today Defense Secretary Donald Rumsfeld warned Congress that the Pentagon needs every bit of the proposed $329 billion military budget. Rumsfeld flies to Crawford, Texas tomorrow where he'll discuss ongoing military revisions with President Bush.

Tim O'Brien reports on what those revisions could mean to big defense contractors.

(BEGIN VIDEOTAPE)

TIM O'BRIEN, CNN CORRESPONDENT (voice-over): Defense Secretary Rumsfeld dismissed reports that declining surplus may require him to scale back expectations.

DONALD RUMSFELD, DEFENSE SECRETARY: I was still developing my expectations and have not gotten to the point where scaling back was appropriate.

O'BRIEN: But Rumsfeld said he still has not decided how to implement his plans for investing in new technologies and modernizing aging equipment.

RUMSFELD: We need every nickel. And we will be working to get it.

O'BRIEN: The Pentagon still wants 3,000 next generation joint strike fighters. The deal could mean up to $200 billion over 10 years. Boeing and Lockheed Martin are both competing for the job.

PIERRE CHAO, CS FIRST BOSTON: Frankly, investing in the defense sector, particularly in a slow economy where there is not much else going on, is not a bad place to be.

O'BRIEN: Perhaps. But transformation may require force reductions, which the Pentagon hates, or closing military bases, which Congress hates.

MICHAEL O'HANLON, BROOKINGS INSTITUTION: After the tax cut, there is a huge money problem and the only way to solve it, short of giving virtually all of the surplus to the Pentagon, is to make some very tough choices.

O'BRIEN: Before rejoining the Defense Department, Rumsfeld accumulated assets valued at between 60 million and 260 million dollars as a business executive. That creates the potential for a conflict of interest.

(on camera): He told reporters he didn't know of any conflicts, but while associates investigate, he will be staying out of any decisions involving weapons buying or corporate mergers.

Tim O'Brien, CNN Financial News, Washington.

(END VIDEOTAPE)

HOPKINS: A dramatic rescue today atop the Statue of Liberty. A French stuntman became snagged on Lady Liberty's torch for more than a half hour. Thierry Devaux had planned to land his parachute nearby, then unveil a sign protesting the use of land mines. After being pulled to safety, he was arrested for trespassing.

There's been yet another shark attack in Florida. The 17-year- old man was bitten while wave boarding. This is the eighth attack in that area in the past five days. Once again, New Smyrna Beach was shut down. The victim's injury was not serious.

Powerball hits a fever pitch. There was no winner last night. That means this weekend's jackpot could top more than $300 million, the richest Powerball prize ever. But not everyone is smiling. Greenwich, Connecticut has suspended ticket sales for 24 hours. The city has been overwhelmed by players, many of them coming in from across the border in New York, where residents can't play the game.

The richly valued stock of donut maker Krispy Kreme continues to amaze many on Wall Street. Today Krispy Kreme beat expectations and raised long-term profit goals. It's also continuing it's rapid expansion. In the most recent quarter revenues were up 28 percent to nearly $90 million. Profits jumped 65 percent. The stock fell more than $2 today, but shares have doubled in the past year. Krispy Kreme's chairman and CEO Scott Livengood saying today, the fundamentals remain strong. And he joins us now. What is it, people eat donuts even if we're in a recession, maybe they even eat more. Is that right?

SCOTT LIVENGOOD, CEO, KRISPY KREME: It's comfort food. Maybe that's the case. What I really think, Jan, is that Krispy Kreme is an affordable treat and that whether times are good or bad, Krispy Kreme seems to be a favorite among a lot of people.

HOPKINS: You're expanding very quickly. At what point though do you reach the saturation point?

LIVENGOOD: Gosh, Jan, we have a long way to go. Although we're a 65 year old company that has artifacts in Smithsonian Museum, Krispy Kreme stayed primarily in the Southeast for most of the its history. In just the last couple of years we have been expanding outside the Southeast.

So we're really just getting started in the U.S. outside of our heritage markets as we call them. We have years and years to develop the rest of the U.S. And we're already beginning to talk about international expansion. So it's long way to go.

HOPKINS: In fact you are going to Canada where there are more donut shops per capita than any other country on Earth. You have big competitor, Tim Horton. How are you going to compete?

LIVENGOOD: Well, we really just look at trying to do the best we can every day to make the best donut we can. Our customers seem to really appreciate that and come in large numbers to Krispy Kreme. I tell you, I really like the fact we're going where people really do love donuts. I think that may be our best market. We think Canada is going to be great.

HOPKINS: You really have a cult following and the stock almost has a cult following as well. Do you worry about maybe some kind of Internet boom and then bust in Krispy Kreme stock?

LIVENGOOD: Well, the one thing that Krispy Kreme has is a history. It has a solid track record of success and we have earnings. And so we have a lot of things that I believe really have nothing to do with the kind of tech stocks situation.

Most importantly, I think our company has a tremendous brand, and that investors aren't looking at today or tomorrow or even next week. I think what our investors are looking at is a brand story that has roots and that has most of its growth in front of it. And they're looking at Krispy Kreme as one of the great brand stories, if you go back many years and say gosh, if I had just bought that stock when that company was getting started it would really have been great for me and my kids and grand kids.

I think our investors are looking at the long-term and we intend to really deliver over the long-term.

HOPKINS: Thanks, Scott Livengood of Krispy Kreme, chairman and CEO. Thanks for joining us.

Still ahead on MONEYLINE, Abbott Labs under a microscope for allegedly trying to cheat Uncle Sam. We'll tell you why. Three top executives make their exodus from Exodus Communications. Well talk to that company's CEO.

And Americans are piling on the debt. We'll tell you how bad things are. Plus, another setback for stocks. We'll tell you why. It's all coming up on MONEYLINE.

(COMMERCIAL BREAK)

HOPKINS: Stocks taking a step back today. The Federal Reserve getting part of the blame. Minutes from a June meeting show the Fed was concerned about cutting interest rates too much. That left the Dow Jones Industrial Average with a 47-point loss. Declining issues edging out advancing issues by an 8-to-7 margin.

Among the most active on the big board: Lucent technologies, dropping slightly after telling analysts it will turn a profit sooner than expected -- it just didn't tell analysts when. West Communications dropping more than 1.5 on news it will not refund customers for lost Internet access because of the Code Red computer worm. Another one of the most active stocks today was Kmart. The discount retailer reporting a smaller loss, but also warning that it's cutting prices to attract more customers.

The Nasdaq's dropping 17, giving back about 3/4 of yesterday's gain. Declining issues leading advancing issues by a 4-to-3 margin. Among the most active issues on the Nasdaq: Cisco Systems. And then news came after the bell, Cisco is splitting into 11 technology groups and it sees signs that business is stabilizing. Siebel systems, also a very active today. Siebel, dropping a couple of dollars on concerns that earnings expectations may be a bit too rosy.

With more on what we can expect tomorrow, let's go to the New York Stock Exchange and bring in Christine Romans -- Christine.

ROMANS: Jan, traders tell me there's a real earnings malaise that continues to be the backdrop, even when we get triple-digit up days like yesterday, then we give some back like we did today. And highlighting that, I guess, is another big Wall Street house today coming out and lowering expectations for Standard & Poors 500 operating earnings for 2001 and 2002. This time Mit was Salomon Smith Barney, lowering estimates for 2001 to $48, 2002 to $52. Now, traders saying that that underscores the earnings malaise you've been seeing overall.

But in terms of tomorrow to end this trading week, a few things on the agenda: July durable goods orders should be a good read into the manufacturing sector. July new home sales, an area that has continued to move along quite well, and the retail earnings are starting to wind down. We're going to get Williams Sonoma tomorrow, but probably traders are saying we're not going to have an awful lot to trade off of in terms of earnings news tomorrow.

And, as you know, it's August, it's Friday. Jan, I sound like a broken record, but volume is usually light on Fridays and Mondays until Labor Day.

HOPKINS: That's right. It's summer. Thanks, Christine.

The Nasdaq today lost less than a percent, but the decline was broad. Just a quarter of the Nasdaq 100 ended higher. Jennifer Rogers is at the Nasdaq marketsite with a look at what we might expect there tomorrow.

Jen, Cisco might be the focus, right?

ROGERS: Oh, definitely. Cisco will definitely be in the spotlight. You know, it's been a pretty bumpy road here as of late, and it seems like a seesaw. We're up one day, we are down the next, and that's one thing that traders are talking about, this sideways trading that we're having. It's a bit choppy here and we're trying to see if we're going to break out of this. We're really churning around these levels on volume that's less than blockbuster. Traders say at best, maybe we can expect to drift a little bit higher. We'll have to see if that trend continues tomorrow.

And, Jan, as you said, Cisco will definitely be in the spotlight, networkers in play. That news from Cisco after the bell sending it higher after hours. It was even up in the regular session, one of the few big cap names here to be able to do that. So we will see how that story plays out tomorrow.

And finally, already creeping into the traders' psyche, next week worries. The issues, we are heading into Labor Day. Of course, a lot of people are going to be taking a little bit of vacation possibly ahead of that. That could leave volume light and we could see some exaggerated moves here possibly. We do have some more economic news coming out next week. But the other problem is that earnings warning season is also just around the corner. Those are some of the things that traders are thinking about tonight.

Back to you, Jan.

HOPKINS: We finish with earnings and now we get earnings warnings. Thanks, Jan.

In our MONEYLINE focus this evening, Web hosting company, Exodus Communications. It's been burning through cash, and now board members. Three announced their resignations today, citing personal reasons. Meanwhile, Exodus says its open to buyout offers. Bruce Francis has more.

(BEGIN VIDEOTAPE)

BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Web hosting firm Exodus Communications says financial advisers are looking at all funding options for the company. The company wouldn't rule out a sale. Exodus helps companies run their Web sites, so it also buys huge numbers of data lines from telecom companies.

Since January, half of that new capacity has to be purchased from Global Crossing. Analysts say that could be an impediment to a deal.

CARY ROBINSON, U.S. BANCORP PIPER JAFFRAY: Because 50 percent of the data traffic is committed to the Global Crossing Network, it makes the Exodus asset base much less attractive to another telecommunications firm.

FRANCIS: And then there's the Exodus balance sheet. According to documents filed with the SEC last week, Exodus had more than $3.5 billion in long and short-term debt. The company lost more than half a billion dollars last quarter, and confesses that it expects losses on a quarterly and annual basis for the foreseeable future.

And money isn't the only thing Exodus is losing. Earlier this week the company announced that three of 10 board members had resigned: Mark Dobovy, Thadeus Mocarski and Naomi Seligman. All three quit for personal reasons, according to the company. In a telephone interview with "MONEYLINE," Tad Mocarski said he left because his venture fund no longer holds Exodus shares and he couldn't afford the time on the Exodus board. The other two could note be reached.

But with the stock down almost 99 percent from its all-time high last spring, and cash running low, Exodus needs to shore up its finances. Analysts say that won't be easy.

CYNTHIA HOULTON, DAIN RAUSCHER WESSELS: They're sitting with market value of about $700 million, 3 billion in debt and fairly high turn in their customer base. So it really puts them in a tough position of really trying to address their capital situation.

(END VIDEOTAPE)

FRANCIS: On the positive side for Exodus, the company says that it is making progress towards weaning away from its dot-com clients and winning new business from more established corporate customers. And the company is expecting sequential revenue growth this quarter -- Jan.

HOPKINS: Thanks, Bruce. Joining me now is the chairman and CEO of Exodus, Ellen Hancock.

Thanks for joining us, Ellen.

ELLEN HANCOCK, CHAIRMAN & CEO, EXODUS COMMUNICATIONS: Thank you. HOPKINS: So, this is a difficult time, and when you have three board members resigning in the same week, it calls into question their faith in the future of the company, doesn't it?

HANCOCK: Actually, Jan, you know, they didn't resign in the same week. If you looked back at our 10Q, we did announce that Ted Mocarski left earlier. What we did decide to do is, in this press release, while we were announcing two more of the board members, was to include Ted as well. But Ted is listed in our 10Q from our earnings for the quarter.

The reason, I believe, for the three, two are venture capital people who had originally been on the board. In fact, they were there before I got to Exodus. And they were there as venture capital companies who invest in the company when it was private. I personally asked the two of them to stay on longer, and as you can imagine in today's environment, their funds are not participating with Exodus, and we have a fair amount of time on our board.

Naomi Seligman, on the other hand, did develop a conflict with some of the other companies that she's concerned with. She talked to me about it a while ago and she believes that the conflict was such that she should leave the board. So I think the three are understandable.

We are now at a board of seven people and, what I'm now being told, is that in technology firms, that's about the norm. And we believe that it's good for core governance. We're getting a lot of communications with the board, so we believe this is OK, actually.

HOPKINS: But there's a real question, with the stock down 99 percent, whether you can continue do go it alone. So is there somebody out there that is looking to buy you, or part of you?

HANCOCK: Let me just discuss the going it alone. And that is that we believe that we are well-positioned, as an independent company. We have stated that in our earnings call. We have sufficient cash to take us into next year. We believe we'll go cash EPS positive next year, in fact, the first hosting company in our history to do that. So we believe we have sufficient cash.

But as we did say, again, on an earnings call, that we have retained advisers to see if we can bring additional cash into the company. But we are well-positioned to go through until we become cash EPS positive.

HOPKINS: But what about the possibility of a telecom company buying you? Or maybe one of your former employers, like IBM?

HANCOCK: You know, Jan, I've been asked this question since I joined Exodus and I give the same answer since I joined Exodus. And I've been carefully rehearsed by both the bankers and the lawyers as to how to answer that question. And that is, that we enjoy being an independent company. We believe we've got a very good business and, as pointed out just earlier, our customers have been incredibly loyal to us as we're going through this. But in terms of good corporate governance, if someone were to come forward, we'd be obligated both in response to our shareholders and our employees to look at such an offer. But we're not sitting around waiting for that. We are right-sizing the company, we're taking cost control measures. We believe we have sufficient cash and we're heading forward.

HOPKINS: Cisco says today that it sees business stabilizing. What are you seeing?

HANCOCK: Well, you know, I'm seeing -- we're all trying to search for bottom, if you like. But what we are seeing is, we are seeing a shift. First of all, the impact of the dot-coms is diminished. We believe that, we saw that impact at its peak in March. We still feel that, that it was March that it was at its highest. And we believe that the IT companies, the enterprises are beginning to come back in. So we're beginning to see a pipeline -- you know, we did $200 million worth of new orders in the second quarter. So we are beginning to see a countermeasure, if you like, that says that companies are beginning to invest again in the Internet.

HOPKINS: Thanks very much, Ellen Hancock of Exodus Communications.

HANCOCK: Thank you.

HOPKINS: And just ahead on MONEYLINE, Barnes & Noble's stock rises on better-than-expected earnings. (UNINTELLIGIBLE) proves it's serious about fun and games.

And the government wants to know whether Abbott Labs provided illegal kickbacks to health care providers. We'll be right back.

(COMMERCIAL BREAK)

HOPKINS: Drug stocks ended the day weaker. The decline led by Dow component, Merck. The drugmaker, under pressure again today on concerns over the safety of its popular anti-arthritis drug, Vioxx. Pharmacia hit by the same concerns. It makes a competing drug, Celebrex. Both companies vigorously defending their products. Pfizer, which co-markets Celebrex, ending the day flat.

One drug company under investigation tonight for possible Medicare fraud is Abbott Labs. Government probe centers on whether health care providers cheated the system by overbilling for some products.

Kitty Pilgrim has the story.

(BEGIN VIDEOTAPE)

PILGRIM (voice-over): Abbott Labs is keeping quiet, and so is the Justice Department. But the health care company is under investigation over its clients cheating Medicare and Medicaid for a markup on products Abbott sold to them. Swiss pharmaceutical company Novartis and a unit of Tyco International and a dozen or so other companies are also under investigation.

For Abbott, the markup was on a product used to feed seriously ill people, a product that makes up some 10 percent of Abbott's business.

LAWRENCE KEUSCH, GOLDMAN SACHS: The allegation is that the companies priced attractively to the distributors or the providers, who were then able to mark up at a much larger rate to Medicare.

PILGRIM: This is not the first investigation into Abbott. A similar investigation of their prostate drug, Lupron, has been going on for years, which is typical of such Justice Department cases. Abbot has taken a reserve to cover what it thinks will be a settlement of that case in the next few months.

Abbott, financially, is in good shape, with analysts bullish on the stock. The stock has climbed 24 percent in the past year, outperforming the market. Wednesday, the stock traded down 66 cents at $52.29.

(END VIDEOTAPE)

PILGRIM: Analysts are not changing any recommendations, based on this new investigation, saying it will take years and will include more than dozen companies. But for the entire industry, it is a significant move, and one that may keep all companies more vigilant about pricing -- Jan?

HOPKINS: Thanks, Kitty. Coming up on MONEYLINE, more sober comments on the health of the retailing industry. We'll take a look at what some firms had to say.

And as the economy grows, consumers are piling on more and more debt.

(COMMERCIAL BREAK)

HOPKINS: Topping tonight's MONEYLINE movers: Barnes & Noble hitting a new two-year high. The country's biggest book retailer posting a narrower-than-expected loss. EBay, falling for the third day in a row, down nearly $2. The latest decline coming despite positive analyst comments. Kmart losing nearly 10 percent. It posted a loss in line with estimates. Sales were down, compared to last year.

Overall, the retail sector ending the session lower. Leading the decline: The Limited, Intimate Brands and Men's Warehouse, all saying today the weak retail environment shows no signs of improvement.

In other corporate news, layoffs at Direct TV, the satellite TV company, a hot acquisition target in the media business is cutting an unspecified number of jobs. The layoffs start this month and continue through the end of the quarter.

Continental Airlines plans to take its Express Jet unit public. Shares of the company could price between $15-to-$17 each, possibly bringing in as much as $319 million. Express Jet operates as Continental Express and is the world's second largest regional airline.

Besides reporting better than expected results, Barnes & Noble also announced plans for an Initial Public Offering of its videogame unit, Game Stop. It was formerly known as Babbage's Gamestop. It sells videogames and software in nearly 1,000 stores.

Japanese videogame maker Nintendo says its Gamecube console will hit the U.S. two weeks late. The inventor of Pokemon says the move is necessary to ensure a smooth rollout. Nintendo says the toys will arrive in stores by November 18, in plenty of time for the Christmas shopping season.

A lot of parents will buy that Gamecube for their kids, and a lot of them will charge it, even though many are already weighed down by a heavy debtload. Hillary Lane has more.

HILLARY LANE, CNN CORRESPONDENT: Jan, Americans stretched themselves thinner and thinner as the economy grew, but now that slower days are here, many families are financially unprepared. A new CNN-Gallup Poll taken over the weekend shows half of Americans struggling financially. Thirty-five percent say they're just making ends meet, 7 percent have tapped into their savings, and 9 percent are taking on even more debt.

And some economists worry that this is just the beginning.

(BEGIN VIDEO CLIP)

MAUREEN ALLYN, ZURICH SCUDDER INVESTMENTS: Remember the economy just started to slow down six months ago. So what we're going see is it's not picked up yet. So for at least another six months we are going to see credit conditions and bankruptcies rising. There's is just almost no way out.

(END VIDEO CLIP)

LANE: In the first quarter, almost 357,000 personal bankruptcy filings. That was a record first quarter high. Second quarter numbers come out tomorrow. It is expected to be record as well. The average household now owes 107 percent of its after-tax income. There's a silver lining in all of this.

Two thirds of Americans now own their own homes. And the refinancing is allowing homeowners to stretch themselves just a little bit further -- Jan.

HOPKINS: Some people are refinancing, taking the money and putting it into the stocks or going out and spending.

LANE: It is a problem. It is a mentality that we got into and that I think little bit by little bit Americans are going to realize that with the uncertainly about jobs maybe they have to change their habits.

HOPKINS: Thanks, Hillary Lane.

Coming up next, a look at your e-mail and "Ahead of the Curve"

(COMMERCIAL BREAK)

HOPKINS: Tomorrow, news on the economy with new home sales for July, as well as durable goods orders for July. Also due, quarterly results from Williams-Sonoma.

And Ralph Acampora, chief technical analyst at Prudential Securities joins us to talk about when to expect a bounce in these markets.

Time for a look at some of your e-mails. Last night's story raising the possibly of a weak dollar hurting stocks, Alan in Alberta, Canada, says it won't. "A weaker dollar will allow foreigners to but U.S. stocks cheaper, afford U.S. vacations, autos, capital goods, and on and on. Remember, there is money on the sidelines here too."

On to the interest rate debate and the Fed's inflation fight, Mark, who says he's been out of work for the past eight months, writes: "Id rather suffer underinflation than die under unemployment."

Staying with rates, Clint in Pennsylvania says he's a senior on fixed income and points out that when there's too much talk about lower interest rates being good for the economy. Clint says his income is "dropping with each CD renewal and 15 or more seniors are in the same boat."

Clint, you're right, and we shouldn't forget that the drop in rates has eroded the income of many retirees. Send us your thoughts. E-mail us at MONEYLINE@CNN.com.

A programming note, starting Monday, please remember to join us at 6:00 p.m. Eastern. That is MONEYLINE for this Thursday. Thanks for joining us, I', Jan Hopkins in for Lou Dobbs. Good night from New York. "CROSSFIRE" is next.

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