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Moneyline News Hour

Profit Warnings Cut Across Wall Street; Eli Lilly Surges on News of Potential Medical Breakthrough; Oracle and Microsoft Wage War of Words

Aired June 29, 2000 - 6:30 p.m. ET


STUART VARNEY, CNN ANCHOR: Tonight on MONEYLINE: profits in peril, the fear that cut across Wall Street today after two corporate giants set off alarms over earnings.

WILLOW BAY, CNN ANCHOR: But one drug giant added more than $40 million of value a minute in trading today. Does Eli Lilly have a new blockbuster in the pipeline?

VARNEY: The very latest on the Oracle debacle. We'll hear from one organization at the center of the storm.

And, the nation overall may be desperately seeking workers, but tonight we'll visit one corner of America desperately seeking jobs: a special MONEYLINE report.

ANNOUNCER: This is the MONEYLINE NEWS HOUR, live from Los Angeles and New York

BAY: Good evening, everyone, and welcome to MONEYLINE. I'm Willow Bay.

VARNEY: And I'm Stuart Varney.

Our top story tonight: corporate confessions rattling Wall Street. Stocks tumbled across the board after Goodyear and Unisys, among others, said profits will disappoint. Troubling talk from the mobile phone giant Ericsson on industry growth did not help the mood either. The Dow fell as many as 168 points, rebounded in the mid- afternoon period, then lost its footing again, and ended down 129. The Nasdaq took a similarly turbulent path, plunging more than 100 points before closing down at 63.

Alan Chernoff reports.


ALAN CHERNOFF, CNN CORRESPONDENT (voice-over): Earnings anxiety is gripping the market, a pile of preannouncements setting the tone. Unisys warning profit may be only half what investors had anticipated. Also joining the earnings short-fall club, GoodYear Tire, Del Monte Foods, and SCM Microsystems, maker of web security programs, all warning that earnings could be one-third shy of expectations. Analysts fear there's more bad news ahead.

GAIL DUDACK, UBS WARBURG: It's going to be a lot lumpier than people are expecting.

CHERNOFF: Compaq short-circuited in on a Solomon Smith Barney warning that sales could fall because Compaq's inventories appear to be rising. Compaq issued a denial after the close. Ericsson's president said growth in mobile phone sales may slow down. That triggered new wireless worries on the street. Qualcomm suffered as PaineWebber lowered its earnings and price targets on the company. The bright spot of the markets, Ely Lilly, announcing success in trials of its treatment for the blood disease sepsis. The stock rocketed 17 1/2 percent, carrying other pharmaceuticals higher.

Yet a rush to defensive issues does little to help the tech-heavy Nasdaq, which has fallen close to a critical support level.

PHILIP ROTH, MORGAN STANLEY DEAN WITTER: We'll break 3700, then I think the recovery trend from the spring lows is over.

CHERNOFF: The answer to the $3700 question lies with corporate earnings reports.


CHERNOFF: Here's where the scorecard stands right now: 56 percent of preannouncements have been negative. Fifty-seven percent is the historical average, 16 percent positive and 28 percent on target. There are more preannouncements to come, two more weeks worth. If a high percentage of companies say they'll be less profitable than promised, the stock market will not be shy to show its disappointment -- Stuart.

VARNEY: Nerve-racking time, really, isn't it?

CHERNOFF: Absolutely.

VARNEY: Alan Chernoff, thanks very much -- Willow.

BAY: The Dow today took its biggest one-day tumble since the middle of the month. But over the past week, it's clearly the Nasdaq that has suffered the most. The Dow has moved in and out of positive territory over the past six sessions. And even with today's loss, the index is off less than a percent. But the Nasdaq, over the same period, has squandered its chance to hit break-even on the year. It's down nearly five percent from a week ago.

Charles Molineaux joins us now from the Nasdaq market site with more on what drove the tech giants under today -- Charles.

CHARLES MOLINEAUX, CNN CORRESPONDENT: No one thing according to the strategists, Willow. It was a series of cross-currents, the strategists say -- a last warning round of profit warnings, yet hit several lanes before the end of the second quarter, which does come tomorrow. Some important indexes, though, are also being rearranged. And then there's the end-of-the-quarter window-dressing going on, as fund managers seek to gussy up their portfolios by dumping the losers and buying the winners, which this time sent the Nasdaq down all day, losing 63 points by the close.

Chip stocks saw heavy selling. They were down 3 1/2 percent. Even after some bullish analyst comments, Intel was down by five, about half a percent. KLA Tencor lost 6 1/2 percent on the day. Telecommunication names also sold off hard, down 2 1/2 percent. Even fiberoptic names like JDS Uniphase, an advanced fiber communications, took it on the chin. It was down 6 1/2 percent.

Internet stocks, like CMGI, Excite@Home and fell two percent as a group. Now, the IPO market has come back to life with a series of debuts. But they got a mixed response. Medical practice web play CareScience was down by 16 1/2 percent on its first day out. Isralie networking company, Accord Networks, also hit turbulence. It lost almost 20 percent. But Internet video company Virage was up by 53 percent on its debut. It leaped out the gate. And Capstone Turbine, which makes mini power generators was a moonshot, up by 200 percent, $31 on its day, closing at $47 a share.

BAY: Charles Molineaux at the Nasdaq, thanks.

Today's broad-based sell-off follows a respectable rally yesterday, after the Fed decided to leave interest rates as is. From now until the next Fed meeting, investors will pour over every economic figure, looking for clues on Alan Greenspan's next move. And today's final revision on economic growth in the first quarter was not exactly reassuring. The economy grew at an annual rate of 5 1/2 percent in the first three months of 2000, faster than inflation-hawks like to see.

And spending took its biggest jump since the early '80s. Still, another report out today showed that new home sales during May dipped two-tenths of one percent, their lowest level in eight months. And that, along will a government buy-back of debt, helped propel the bond market today. The 30-year issue was up 1 3/32, its biggest rally in a month. The 10-year gained 17/32.

VARNEY: While economic reports are sure to keep investors busy, it's profit reports that are likely to dominate the action on Wall Street in the coming weeks. The fear today in the markets: that other, bigger corporate shoes are about to drop by issuing more gloom- and-doom predictions about earnings.

Well, joining us now with her market outlook, Liz Ann Sonders. She manages about $6 billion for Campbell, Cowperthwait/US Trust.

Liz Ann, welcome back.


VARNEY: Last time you were here, and many times before that, you were bullish. You've always been bullish that I've known. Are you still bullish?

SONDERS: Yes, I am still bullish.

VARNEY: Tech stocks in particular?

SONDERS: Tech stocks in particular. I think, in general for the market, what has propelled the market, which is a powerful combination of great earnings, low inflation, I think is going to continue for some time. And then technology, the bottom line is we're in the middle of an information revolution that is so powerful, probably more powerful than the Industrial Revolution.

VARNEY: Now, there are a lot of people who bought into the tech stock dip right after March, and they're sitting on some losses at the moment. You're reassuring them. You're saying: Hold on, it will come back.

SONDERS: It depends on what you bought. I think there's going to continue to be a bifurcated market between the companies that are legitimate -- have earnings, have a track record, have good management, have an appropriate business model, etcetera etcetera -- versus those companies that I think are in camp where you're going to see a lot of carnage still, because a lot of the Internet companies won't be around in five years.

VARNEY: Last time you were here, you liked big name, big-cap tech stocks: Sun, Intel, Dell, Cisco. Any to add to that list?

SONDERS: You know, I really like the optics area, JDS Uniphase, I would put on that list.

VARNEY: But the valuation -- I mean, OK, it's come down, but the valuation is still huge.

SONDERS: I think there's a bit misperception about valuation in general on some of these high-growth companies. And the word growth I think is the key determinant in valuing a company. And in many cases, these companies are growing three, four, five, six, seven times faster than the market. So, when you look at it on a p/e to growth bases and you take into consideration how fast these companies are growing their earnings, it really makes the valuation picture much more reasonable. And that's what we tend to look at.

VARNEY: Come outside big names, big caps of high tech for just a moment. Is there any other group that you like? I'm thinking biotech, for example.

SONDERS: I love biotechs. I still think, though, you have to sort of navigate into the bigger, safer names: Genentech being one of a pure biotech area. Another interesting play, I think, is PE Biosystems, which is a supplier of instruments to the biotech industry. So, I think it is kind of a unique way to play the boom in biotech, but I think a little bit safer a way to play, as oppose to trying to pick, you know, the hot new biotech company that's going to win.

VARNEY: Super-bull Liz Ann Sonders, always a pleasure. Thanks for being with us. SONDERS: Nice to be here.

VARNEY: Thank you -- Willow.

BAY: Stuart, coming up on MONEYLINE, looking into the book at Xerox, an after-the-bell admission, and some serious questions for the copy giant. We will have live report.

Allegations turned a trendy fashion company upside down. But today, Steve Madden said: I didn't do it. And later, a special report on one part of the nation left out of history's greatest economic boom.

Stay with us.


BAY: After the bell today, Xerox said the Securities and Exchange Commission is investigating accounting issues related to its Mexico operations. Xerox said it is fully cooperating. The SEC, however, declined to confirm or deny the investigation.

Steve Young joins us now with more on it.

Steve, you first brought this to our attention a few weeks ago. And it was unclear at the time what nature of problem in Mexico was. Steve, is it any clearer now?

STEVE YOUNG, CNN CORRESPONDENT: Willow, not really. Analysts are still in the dark and some continue to harbor dark suspicions. Xerox confirms there is a problem with its Mexican accounts, which it says it discovered only a few weeks ago, but won't elaborate.

Credit Suisse analyst Gibboney Huske says she thinks the SEC is investigating the possibility that Xerox may have committed out and out accounting fraud. The company recently said that because of problems with money owed by Mexican customers, its earnings could fall 5 to 6 cents short when Xerox reports July 26th. She believes based on company comments on that last conference call and other comments to her that the fraud, if it occurred, could have involved people inside as well as outside the company and that Mexican authorities are investigating as well.

A second analyst who didn't want to be identified by name or by firm says Xerox may have tried recognizing Mexican revenue before it was actually earned. He says Xerox failed to make its numbers for several quarters and that's the kind of situation in which accounting fraud tends to occur. After falling three eighths in regular session, in light after-hours trading Xerox stock fell another half point to 18 11/16 -- Willow.

BAY: Steve, there seems a lot of uncertainty. When can we expect to learn more about this?

YOUNG: The company says that when it reports those earnings on the 26th of July we will learn more.

BAY: Steve Young, thank you -- Stuart.

VARNEY: Thanks, Willow.

Shoe designer Steve Madden in court today pleading not guilty to charges of securities fraud. Madden, known for his trendy women's shoes, was arrested last week for participating in schemes to manipulate as many as 22 initial public offerings, including stock in the company that bears his name. Prosecutors accuse Madden of sharing in profits of more than $4 million. He has temporarily stepped down as company chairman, but still serves as CEO. Madden stock unchanged today, but it's down 46 percent since his arrest.

BAY: In other corporate news, Providian Financial said it will pay at least $300 million to settle allegations that it mislead credit card customers about interest rates and annual fees. Under the agreement, an estimated 3 million customers will receive checks ranging from several dollars to several hundred dollars.

Elsewhere, Ford's $6.9 billion offer to buy Daewoo Motor paid off. It was the winning bidder for South Korea's second largest auto maker, beating out rivals GM and DaimlerChrysler. A final deal still must be negotiated, which if successful, could double Ford's presence in the Asian car market. On the news, Ford gained more than 1 1/4. And investors jumped back into Providian, up nearly 8. But the stock has fallen 40 percent since the investigation was made public back in May of last year.

VARNEY: An after-the-bell profit report from Nike tonight. It met fourth-quarter earnings of 46 cents a share. While Nike continued to struggle with weak sales in the U.S., global orders were up 3 percent. In after-hours trading Nike shares down fractionally at 39 1/2.

BAY: Still to come on MONEYLINE, bargaining on the Web heats up as big name airlines take on

VARNEY: And listen to this, Willow. You want to know the salary of your favorite CEO? Well, a new Web site promises to get it for you real fast. We'll talk with the force behind, next.


VARNEY: As you might imagine, several stocks hit 52-week lows today. And they include some really big names. Look at this: AT&T, Circuit City, First Union, General Motors, and Owens Corning.

A group of major airlines is coming in for a landing on turf, offering discount fares over the Internet. The year-old venture code-named "purple demon" will launch this fall as The site already has 50 employees and nearly $75 million in initial funding. Airlines investing in and offering flights on the hotwire include: United, American, Northwest, Continental, US Airways, and America West. Priceline typically books 80,000 tickets a week on 30 different airlines. Nevertheless, word of competition sent shivers through priceline stock today, down 3 1/4, about 8 percent on the day's trading.

BAY: eCompanies, an L.A.-based Internet incubator this week launched its biggest and most expensive site to date, The name itself cost $7.5 million, a record for a Web address. Footing the bill along with eCompanies: investors such as Goldman Sachs and CS First Boston. The site is run by a small army of library scientists who edit and cull through business Web sites. With 330,000 categories, promises to be a resource on everything, from wood screws and CEO salaries to trucking standards -- all of that for free.

Sounds great, but how will they make money? Joining us now, Jake Winebaum, co-founder of eCompanies and the acting CEO of

Jake, welcome back to MONEYLINE.


BAY: So you sort of combined hi-tech and low tech, which is the resources of the Internet plus all these librarians doing sort of old fashioned collecting and editing. What does it allow your users to do that other Web sites don't?

WINEBAUM: Well, the business Internet is so vast and will grow ever-vaster with each passing day as more businesses come on to the Internet. And what this allows us to do is combine powerful technology with experts, people who know the legal industry, people who know the agriculture industry, to help our users find precisely what they're looking for quickly and efficiently.

BAY: Who are your users and what kinds of things are they looking for, though?

WINEBAUM: Well, they could be looking for everything from a company that they want to do business with, a new company. They could be looking for financial information on a particular company. They could be looking for a person. Anything that relates to business, you'll find on

BAY: How does make money? Is it advertising driven?

WINEBAUM: Partly, yes. Advertising's going to be a large part of our revenue. If we could attract, which we will, this large audience of business people and they will come to and advertise as we want to reach them.

BAY: Do you worry, though, about -- we keep hearing that the advertising market online is drying up, and that advertisers are questioning the effectiveness of advertising online. Is that troubling?

WINEBAUM: Not at all. Actually the projection is there will be about 60 million users of the business Internet this year. That will grow to about 200 million in the year 2003, and a lot of money will shift from trade publishing, will shift from other direct sales forces onto the Internet to prospect for new customer.

BAY: Ecompanies is an Internet incubator, and you pride yourself on going to idea to marketplace in 90 to 180 days. But what is the marketplace right now? It seems as if venture funding, additional rounds of funding, is drying up, and the IPO market is all but dead, particularly for b-2-c companies. So where do you go with these new ventures?

WINEBAUM: Well, we are finding that there is tremendous amount of capital still out there for great companies.

BAY: Where?

WINEBAUM: From venture capitalist. The IPO market window has opened and shut probably five or six times since 1995, and will open and shut many more times. It will open again.

BAY: So what do you do? Do you wait for it to open again and then get those companies out the door?

WINEBAUM: We're very early stage. We can support our companies until their profitable. And when they're profitable, the market will reward strong profitable companies.

BAY: Jake Weinbaum of Ecompanies, thanks for joining us.

WINEBAUM: Thank you very much, Willow -- Stuart.

VARNEY: Thanks very much, Willow.

Still ahead on MONEYLINE, baseball pitcher John Rocker comes back to play in city he talked down. How will New York greet him? We'll have that story in our news digest next.


VARNEY: Hundreds of New York City police officers are on alert tonight as controversial baseball pitcher John Rocker prepares to take the field in the city he said so much about a couple of months ago. That story tops our news digest. Wolf Blitzer is in Atlanta with more on it -- Wolf.

WOLF BLITZER, CNN ANCHOR: Thanks, Stuart. Atlanta Braves pitcher John Rocker is set to play at Shea Stadium in New York tonight, in a game due to start just minutes from now. In December, Rocker slammed minorities, gays and New Yorkers in a magazine interview.

Frank Buckley is at Shea Stadium now with the latest -- Frank.

FRANK BUCKLEY, CNN CORRESPONDENT: Wolf, the fans are starting to fill the stadium here, Shea Stadium, to watch the Braves take on the Mets, and to watch John Rocker play, amid heavy security.

(BEGIN VIDEO CLIP) JOHN ROCKER, ATLANTA BRAVES PITCHER: The comments I made over six months ago offended many people. I'm fully aware of this, and for that I sincerely apologize. The situation, however, has become a distraction to many of my teammates. Unfortunately, many members of the media have overestimated my significance. I'm merely a baseball player guys. In the great scheme of things, my thoughts, opinions and attitudes were of little importance.


BUCKLEY: Rocker apologizing to the people of New York for his comments to "Sports Illustrated" last December. Finally, there was some concern that John Rocker might take number seven train from Manhattan into Shea Stadium. That did not materialize. Rocker instead arriving here by car.

Frank Buckley, CNN, reporting live from New York.

BLITZER: Thanks, Frank. Also tonight, a hostage siege under way at a Walt Disney World hotel. Police say a man claiming to be heavily armed is holding his 4-year-old son and a food-service worker. According to officials, the man wants to see his wife, from whom he's separated.

In Washington State, that wildfire at the Hanford Nuclear Reservation is 40 percent under control. It has scorched over 180,000 acres, but Hanford officials say there's no immediate threat to the facility itself, where radioactive waste is stored.

And federal regulators say they've accepted a plan from Alaska Airlines to improve maintenance and safety measures, following a January crash off Los Angeles. Also announced: federal maintenance inspections at the nation's nine other major airlines over the next three months.

In Washington D.C., a key vote for the first change in campaign finance laws in more than two decades. The Senate approved a bill requiring secret tax-exempt political groups, known as 527s, to disclose their income sources.

And finally, President Clinton today named a new commerce secretary. Former California Congressman Norman Mineta will replaces William Daley, if confirmed by the U.S. Senate. Daley is taking over Al Gore's White House campaign.

I'll have much more ahead on "THE WORLD TODAY." That's at 8:00 p.m. Eastern, 5:00 p.m. on the West Coast -- Stuart.

VARNEY: Thanks very much, Wolf.

Coming up in our next half hour, full coverage of the action on Wall Street.

BAY: How fears over future profits made investors skittish, worrying about the shape of the second quarter.

VARNEY: And a pharmaceutical giant sees its stock soar. We'll hear how Eli Lilly found a key to treating a deadly infection.

BAY: Plus, a special look at how the other half lives. Not too far from Silicon Valley, where it's tough to find employees, there's one California county where it's even tougher to find a job.


BAY: In tonight's headlines, a tumultuous day on Wall Street, as several big profit warnings send chills through the markets. And the day after Oracle accuses several lobbying firms of being shills for Microsoft, we'll hear from one of those nonprofits which is defending its independence.

Plus, how the booming economy has failed to spread the wealth to all parts of the country. A special report from Tulare County, California.

VARNEY: But first, more on tonight's top story. Wall Street hit with jitters over corporate profits, as several firms slashed forecasts dramatically. The Dow churned lower through the morning, then regained its footing, only to slip again to close down nearly 130 points at 10398. And fears over tech earnings undercut the Nasdaq, which slumped 63 points, that more that 1 1/2 percent. It moved down to 3877.

Now setting off today's selling: Unisys. It issued a profit warning, prompting four Wall Street brokers to slash their ratings. The stock sank nearly nine points all the way down to 14 3/4. That is a loss of more than one-third of its value.

Bruce Francis reports on what was once one of Wall Street's favorite comeback stories.


BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): There are few stories investors dislike more than a turn-around that looks like it's turning back. Posting its third major disappointment in four quarters, computer consulting firm Unisys says that revenues will drop 13 to 15 percent from a year ago, despite earlier projections of a slight drop. That means earnings per share will come in at 18 to 20 cents. Analysts had expected about twice that.

The company blamed deferred contracts, weak sales to government and financial services clients, and currency problems for the shortfall. Unisys CEO Lawrence Weinbach said in a statement that: "Customers are turning their attention to new e-business projects and placing less focus on more traditional solution and service packages."

Analysts say the company's specialty, managing armies of desktop PCs, just isn't hot with big corporate customers right now.

ERIC ROCCO, GARTNER GROUP: Some of them are spending money on trying to figure out their e-business strategy. And that's where a lot of the IT budgets are going as well. FRANCIS: Once a mainframe manufacturer, the company now focuses on computer services, a story that propelled the company to its all time high last year at nearly $50 a share. But an earnings warning last fall, followed up by another in April and this latest one have crushed the stock down 70 percent.

But Unisys is not alone. Competitors EDS and Computer Sciences Corp. have also disappointed investors recently, with disastrous results. IBM also dropped earlier this week on concerns of weak service revenues.

While analysts still like the technology services business, some say Unisys has more work to do.

GREGORY GOULD, GOLDMAN SACHS: The next phase of the turn-around, though, is to accelerate revenue growth. And that requires a positioning -- a repositioning of the company toward e-business. So the turn-around is clearly taking a lot longer than originally anticipated.


FRANCIS: Services firms are also still feeling the after effects of a Y2K spending binge. So they have a challenging combination of tapped-out customers and tough comparisons with a banner 1999 to overcome. It's a big bill -- Stuart.

VARNEY: But you wouldn't go so far as to say that the service industry general is in trouble, would you?

FRANCIS: I wouldn't because all this stuff is so enormously complex. It takes someone to put it all together. You need these independent businesses to do that. Depends on a matter of strategy. Are you in the right place at the right time? Unisys does not appear to be right now.

VARNEY: Yes, but to lose a third of value in one day. That's a big hit indeed, isn't it?

FRANCIS: Investors are unforgiving in this market.

VARNEY: It's the truth. Bruise Francis, thank you -- Willow.

BAY: Stuart, Unisys had some company today. Goodyear Tire also said its second-quarter profits would come in about one-third shy of analyst forecasts, blaming the results on increased competition and slower sales.

That news triggered a host of brokerage downgrades. And SCM Microsystems said its earnings would come out at 7 to 11 cents a share, less than half of expectations. The maker of security software cited weak sales for the shortfall. Checking those stocks: SCM Microsystems lost nearly 35 3/4 and Goodyear shed more than two.

VARNEY: And now take a closer look at some of the stocks that led all that turbulence on Wall Street. First off, JP Morgan down more than four points. Hewlett-Packard off nearly four. United Technologies, Cisco Systems both of them down more than two.

Check a broader market now. The S&P 500 slipped more than 12 points. And declining issues edged out advances by a narrow margin. And there were 114 stocks that his new highs; 72 hit new lows.

BAY: Another stock bucked today's overall market downdraft: Eli Lilly. The drug firm surged on news of a potential medical breakthrough that Lilly had taken a significant step toward a treatment for sepsis, an infection that often proves fatal. Lilly stock gained nearly 15 1/2 or more than 17 percent on the news.

Greg Clarkin has more.


GREG CLARKIN, CNN CORRESPONDENT (voice-over): Doctor Mark Astiz treats patients suffering from sepsis at St. Vincent's Hospital in New York. It's a disease that kills almost one out of two people who contract it, and one that has frustrated modern medicine.

DR. MARK ASTIZ, ST. VINCENT'S HOSPITAL: It's the major cause of death in medical land surgical intensive care units throughout the country. And it's probably the major cause of death, severe infections of anybody who's really in the hospital other than patients who come in with heart attacks or that kind of problem.

CLARKIN: But help may be on the way. Eli Lilly is developing a drug to fight sepsis. Testing has been successful, and Lilly will now apply for approval to the FDA.

The news sent shares of Lilly soaring, the stock gaining 17 percent on the day. It's now up 54 percent on the year.

The drug, named Zovant could ring up to $1 billion in sales annually. And it could also provide Lilly with timely boost.

JEFFREY KRAWS, GRUNTAL: The positive news for Lilly is that this is one of a number of products they have in late-stage development that will help them offset the loss of Prozac when it faces patent expiration.

CLARKIN: Lilly executives refuse to estimate the potential market for the drug, but they did talk about the benefits.

SIDNEY TAUREL, CHAIRMAN AND CEO, ELI LILLY: You know, we're going to saving hundreds and thousands of lives with this product. It's also a product which will have tremendous economic benefit because it is estimated that in this country alone, sepsis costs $10 billion to $15 billion to the health care system.

CLARKIN: Sepsis strikes patients already suffering from diseases ranging from cancer to AIDS, and kills 1,400 people a day, about half of those in the U.S.

(END VIDEOTAPE) CLARKIN: And while doctors greeted the news of a possible breakthrough with optimism, there was also some pessimism. They've seen dozens of drugs try and fail to combat sepsis. But all agree an effective drug would be a boon not only to Lilly's bottom line, but to the 1.5 million people worldwide suffering from the disease -- Willow?

BAY: Greg, has Lilly laid out a timetable for getting this drug to market?

CLARKIN: Willow, at this point they expect to submit the data to the FDA sometime in the first quarter of year 2001. If all goes well, they're looking to possibly move it to the market sometime early in 2002.

BAY: Greg Clarkin, thanks.

Coming up on MONEYLINE, fallout from Oracle's admission it hired private detectives to probe lobbyists who support Microsoft.

VARNEY: And this is a story that's not going away. And we're going to talk to the head of one of those nonprofit organizations under fire from Oracle, fighting back, in fact. We'll be back.


BAY: It's day two since the cool hostility turned into open warfare between Oracle and Microsoft over the role of lobbyists and revelations of corporate snooping. Microsoft continued to defend itself today against Oracle accusations that it used nonprofit firms as front organizations. And it charged Oracle with doing precisely the same thing.

Allan Dodds Frank has the latest from Washington.


ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): In the nation's capitol the battle between Oracle and Microsoft about each other's use of nonprofit groups continues with a vengeance. Both Oracle and Microsoft are sniping at each other, insisting their connections with and contributions to nonprofit public interest groups are above board and have long been well-known.

LARRY MAKINSON, THE CENTER FOR RESPONSIVE POLITICS: It's standard Washington operating procedure that once you get your -- caught with your hands in the cookie jar, to accuse other people of also having cookie jars and their hands stuck in them.

FRANK: Oracle chairman Larry Ellison yesterday took responsibility for his company authorizing private eyes to investigate, and even sift through trash from Microsoft supporters in order to establish their sources of funding.

Today, Oracle provided this letter to MONEYLINE turned up by their private eyes, regarding Microsoft's payment for an ad the Independent Institute ran last year. Microsoft denies it has concealed its relationships with public interest groups, including the Independent Institute.

MARK MURRAY, MICROSOFT SPOKESPERSON: We've been very up front about who we've worked with. I think Oracle has not.

FRANK: In a statement, Microsoft also said: "Obviously Oracle has funded our supported numerous groups that have attacked Microsoft in recent years, such as Pro Comp, the Progress and Freedom Foundation, the Software and Information Industry Association and the Computer and Communications Industry Association.

Those groups told MONEYLINE Oracle's participation in their activities has long been public.

KEN WASCH, SOFTWARE & INFO. INDUSTRY ASSN.: Paying for somebody's trash is pretty unusual, but frankly, I think that Oracle, overall, performed a valuable public service in exposing several organizations that claim to be -- quote -- "independent of Microsoft," and the information that's come to light shows that they're not independent at all.

FRANK (on camera): Each side is trying to claim the moral high ground. But off camera, each company predicts that much remains to be disclosed about its arch rival.

Allan Dodds Frank, CNN Financial News, Washington.


VARNEY: As we just told you, one of groups at the center of this firestorm is the Independent Institute. And last night on MONEYLINE, Larry Ellison questioned the integrity of that organization.


LARRY ELLISON, CHAIRMAN & CEO, ORACLE: Microsoft's refusing to disclose anything. Microsoft won't tell people that they created Americans for Technology Leadership, that they paid the Independent Institute, which is neither independent nor an institute. But all these people have been saying nice things about Microsoft because Microsoft pays them to say nice things about them.


VARNEY: In response to Ellison's attacks, David Theroux, founder and president of the Independent Institute, came out fighting. In a letter today in "The Wall Street Journal," he wrote, "The truth of the matter is, our research and work in this area predates the Microsoft case, the browser wars and even the Internet industry itself."

David Theroux joins me now from San Francisco in tonight's "MONEYLINE Focus."

So, welcome to MONEYLINE.

DAVID THEROUX, THE INDEPENDENT INSTITUTE: Good to be here. VARNEY: Larry Ellison of Oracle calls your organization a Microsoft front. Essentially, he says you are bought and paid for to put out the Microsoft line. What's your response?

THEROUX: Well, I would say it's rather preposterous considered we were started in 1986. Our research by our fellows started in 1988. Their first studies appeared in academic journals in 1990. Our first book on antitrust, called "Antitrust & Monopoly" was published also in 1990, and tracked through the 1990s up to present with our recent book called "Winners, Losers & Microsoft."

The difference here is that we're an academic research institute. We have many, many fellows. We get involved in many, many issues. All the conclusions of our studies are based solely on peer-reviewed science, unlike what Oracle or IGI is about. I think it's unfortunate that a $10 billion company like Oracle would consider to be so threatening for us to put together a letter signed by 240 economist and a book authored by two economist that they would launch a campaign like this to try and smear us.

VARNEY: Let me take you up on that sir, because Oracle as you know, as you heard a moment ago, has provided CNN with a letter written by you, David Theroux, to a Microsoft executive. That letter details $153,000 dollars in charges for pro-Microsoft newspaper ads. And you write -- and I'm quoting you now -- "Upon receipt of your check, we will immediately pay "The New York Times" and "The Washington Post." Please make your check payable to the Independent Institute.

Now if you take money to put out a Microsoft, a pro-Microsoft ad, are you truly independent?

THEROUX: Well first of all, you've got to understand that when I submitted that letter to Microsoft, it was after the adds ran, and it was in response to their request for me to send them information about the cost to us to do our adds. They then refused to pay. In fact, my interest was to try to get them increase my support, and instead, they decided to simply renew their support in a general way.

But even regardless of that, the Institute doesn't do any contract work, again, different from Oracle and other groups that Oracle has been involved in. We are an independent institute that is simply based on peer-reviewed science. And the bottom line of that...

VARNEY: Can I just interrupt for one second, sir?

THEROUX: Go ahead.

VARNEY: You study business in America.


VARNEY: Is what Oracle did in hiring these private investigators, going through your trash, et cetera, et cetera, is that the norm in American business, or is this grossly unusual? THEROUX: I would say that I cannot remember a CEO of any major company behaving this way. And I think it is rather Nixonian, to say the least, that a firm will launch a campaign to smear those who have voices, legitimate scholars, who were critical of a particular public policy.

And one thing I should mention here is that the information that IGI got in whatever way they got it, provided no new information, no accurate new information from what we hadn't announced publicly at our press conference, when we held the release of the open letter in Washington over a year ago.

We announced that Microsoft was a supporter. We even announced the percentage that we got from it. And since I had earlier sent Larry Ellison a copy of the draft of the book and the book later, it seems to me that his response was, he didn't like it too much, and we would be smeared as a result.

VARNEY: David Theroux, president of the Independent Institute, thanks very much for being with us on MONEYLINE, sir.

THEROUX: Thank you.

VARNEY: Willow.

BAY: Stuart, still to come on MONEYLINE, will WorldCom and Sprint fight the government to save their deal, or will they surrender? We'll also check out some of the day's biggest movers. Those stories next.


BAY: Topping tonight's "MONEYLINE Movers," Compaq lost more than 3 3/4, or 13 1/2 percent. Solomon Smith Barney downgraded it, citing concerns about excess inventory that could hurt second quarter sales. And after the bell, Compaq responded, saying only that right now it -- quote "is comfortable with channel inventory levels." In after-hours trading, Compaq gained one on light volume.

Palm gained more than 3 1/4. It reported fourth-quarter earnings late yesterday, beating the street by 2 cents a share. Despite today's gains, this 3Com spin-off has fallen 22 percent since its IPO. PMC-Sierra lost more that 5, after announcing it plans to buy privately held wireless chip maker, Datum Telegraphic. And Sagent Technology gained almost 5. Chase H&Q upgraded the software maker to a buy rating with a $32 price target.

VARNEY: More signs of life in the IPO market. Capstone Turbine, which makes products for hybrid electric vehicles, today surged 200 percent in its first day of trading. Capstone jumped 32 points. It closed at 48. Another IPO doing well today, Virage. That's an Internet software developer, up nearly 6 points. That is 53 percent. But Accord Networks, which makes equipment for real-time interactive communications, down more than 2. And Internet health-care firm Care Science also lost some ground today. BAY: Sprint says it will still be a few more days before a decision is made on whether to drop merger plans with WorldCom. Tuesday, the Justice Department filed a lawsuit to block the deal. The two sides have been meeting since, trying to figure out if they can save the merger or scrap it. Shares of Sprint gaining more than 2 today. WorldCom down 1/2 after big gains this week. And Deutsche Telecom shed nearly 5 1/2 on talk that it might step in to scoop up Sprint if the deal falls apart.

VARNEY: More on telecoms in tonight's "Sector Report," specifically, wireless stocks. Much of the group tumbled today, following a warning from Ericsson that growth in the mobile phone sector could slow. The third largest wireless company said higher- than-expected costs of next-generation products could cut into sales. Shares of Ericsson down nearly 1 1/2. Industry leader Nokia dropped more than 1 point. Voice Stream, Powertel, Nextel, all of them down sharply, giving back some of the gains made earlier in the week. All three, by the way, are considered possible takeover targets following the government's decision to block the WorldCom-Sprint merger.

BAY: Still to come on MONEYLINE, with the unemployment rate at a 30-year low, why can't these people find jobs? A special report from California's Tulare County, where one in every six workers who want a job can not find one.


BAY: Today's report on GDP shows that the economy continues to grow at a blazing place. But in some parts of the country, you wouldn't know it, including Tulare County, California, where unemployment is running rampant.

Casey Wian looks at the problem in this MONEYLINE special report.


CASEY WIAN, CNN CORRESPONDENT (voice-over): As another day breaks in Tulare County, dairymen lead cows to be milked, women pack oranges, and farmers work the fields. It seems like a busy place. But look closer at this home to 360,000 people in the heart of California's agricultural belt and you'll see a big problem: not enough jobs. This year, the jobless rate here has averaged 16 percent, about four times the national rate.

(on camera): You might not think a place with more cows than people would have a problem with unemployment, but Tulare County does. Throughout the past decade, Tulare County's annual unemployment rate has never been below 15 percent. The seasonal nature of agricultural work is partly to blame, so are demographic shifts.

Past generations of migrant farm workers returned to Mexico when work ran out. Now many have settled here, with large families. The population is growing faster than the job base. One way county officials are trying to ease the job crunch is by paying underemployed locals to leave town.

UNIDENTIFIED MALE: We're going to give you $1,200 total.

WIAN: Maria Hayes is moving her family to take a job with a poultry producer in Washington State.

MARIA HAYES: It just gives me a chance for my family to go ahead and relocate up there and just start off new.

WIAN: So far, nearly 1,000 county residents have been exported to places where workers are scarce. About half have been on welfare. By leaving, they save the county about $1000 a month in benefits. Relocating workers may help, but it's not a solution. So the county is trying to diversify by using its large pool of low-cost labor to attract nonagricultural businesses. Best Buy moved a distribution center here last year.

WASHINGTON HICKMAN, GENERAL MANAGER, BEST BUY: We were able to come in and actually get a very stable workforce in a very short period of time.

WIAN: While Tulare County's labor force is plentiful, it's not highly skilled. Fewer than half of county residents have finished high school, so attracting new employers is tough. Local companies, such as Ruiz Foods, must spend extra money to train workers in basic math and language skills, before they can learn a job.

RIC ALVAREZ, CEO, RUIZ FOOD PRODUCTS: But that's essential for the fairly low level of education that's available to us and fairly low level of skills. But once we train those employees, we have a very loyal labor pool.

WIAN: Welfare-to-work programs, like this one teaching food service, computer, construction and apparel skills, are another short- term answer.

FRANK ESCOBAR, COUNTY JOB TRAINING COORDINATOR: The key long- term is our education. We need to do a better job in educating our young people to finish high school, to go on to college, and learn those technical and vocational skills they'll need to get a job.

WIAN: Cleo Bailey learned that the hard way. He's been out of work for two years. He lost his job at a printing company when it went high-tech.

CLEO BAILEY: I could see people that had started after me working there, passing me going into the computer part, and I was just dead in the water.

WIAN: Besides the usual offers of job training and tax breaks for companies willing to move here, Tulare County has also hired a New York public relations firm to help improve its image. One of its towns, Exeter, is trying to attract tourist dollars with murals and arts festivals. What's perhaps most surprising is the way many here view the jobless issue.

ROY CHACE, CITY ADMINISTRATOR, EXETER: You'd love to see more employment, obviously, because it would provide a better tax base for you as a city, but I think because it's been so long, we've just grown to, I guess, accept it.

WIAN: Even the most optimistic locals say double-digit unemployment is likely to persist here for the foreseeable future.

Casey Wian, CNN Financial News, Tulare County, California.


VARNEY: And up next, "Ahead of the Curve."


VARNEY: Here's what could move the markets tomorrow: Xerox. After the bell today, it said the SEC was investigating problems with its Mexican operations. On the economic front, a report on personal income and spending for May. That's coming out tomorrow. To stay a step ahead of market, tune into "Ahead of the Curve" every day at 5:00 a.m. Eastern Time on CNN.

BAY: That is MONEYLINE for this Thursday. I'm Willow Bay.

VARNEY: And I'm Stuart Varney. Good night from New York.

"CROSSFIRE" is next.



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