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Moneyline News Hour
Dow Rises 64.74 to 10,784.48; Nasdaq Climbs 67.27 to 3,523.10; Dell Issues Revenue Warning; Micron Beats Wall Street's ExpectationsAired October 4, 2000 - 6:30 p.m. ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
STUART VARNEY, CNN ANCHOR: Tonight on MONEYLINE, the Nasdaq stages a much-needed bounce-back, but getting there was not pretty: inside a wild session on Wall Street.
And tomorrow might be just as rocky: Dell joins a sorry list of tech bellwethers delivering an after-the-bell warning.
A corporate drama playing out in the headlines: Is AT&T about to embark on a drastic restructuring? Who is floating the options in the press and why?
And she is perhaps the best-known face in the art auction world. Now MONEYLINE has learned that Dede Brooks and Sotheby's will plead guilty, possibly as early as tomorrow, to breaking antitrust law.
ANNOUNCER: This is MONEYLINE. Reporting tonight from New York, Stuart Varney.
Good evening, everyone, and welcome to MONEYLINE. Willow is off tonight.
Our top story: direct from Austin, Texas, an after-the-bell warning from Dell. For the third week in a row, a high-tech giant related to the PC business has stunned Wall Street by warning that either sales or profits would disappoint. First Intel, then Apple. Tonight, Dell, one of 1990s hottest stocks.
Dell warned that quarterly sales will come in weaker than expected. Its stock, already at a 52-week low during the regular session, is down 2 1/2 points at 25 11/16 in after-hours trading.
It's quite a late-day letdown for the markets, which enjoyed a tech rebound after the three straight sessions of brutal losses. But it wasn't all smooth sailing. The Nasdaq was down 73 points at its low, then up more than 76 at its high before settling with a gain of 67. That's 3,523.
The volume again was heavy, more than 2 billion shares traded today.
Less drama on the Dow, which ended up more than 64 points. Gains in Hewlett-Packard, Intel, IBM accounted for more than half of that rally. The S&P gained nearly eight points, and it close at 1,434. Just one look at a handful of big-name stocks shows just how hairy today's session really was: Oracle, Sun Microsystems, JDS Uniphase, and IBM all moved in a huge range, especially Sun, which traded in a near $11 range. And that's just a sample.
We begin our coverage tonight with Bruce Francis with more on Dell's disappointment and this market's rocky ride -- Bruce.
BRUCE FRANCIS, CNN CORRESPONDENT: Stuart, this one didn't exactly come out of nowhere, but it's nevertheless troubling to some investors. Two tech giants were the bookends for today's session. For Oracle, the word was that things were OK despite an unsettling analyst report at the outset. But for Dell, which had recently told investors that the current quarter was on track, a revision provided a nasty surprise.
FRANCIS (voice-over): Weak PC sales claim another victim. After the bell, Dell Computer said that Dell's European demand has been weak and growth in sales to worldwide small-business customers has been somewhat short.
The PC maker said that that will cause the current quarter's revenue to come in about 3 percent short of expectation. Worse yet, Dell said that if the weakness persists, revenues for the year might grow only 27 percent, enviable for many companies, but short of Dell's goal of 30 percent. That kicked a tech sector that had been down eight of the last 10 days.
All the top Dell analysts are in Austin, Texas for a previously scheduled meeting with Dell. Word of the revenue shortfall came as a surprise.
WALTER WINNITZKI, CHASE H&Q: On one hand, Dell's announcement is A mild surprise, because it does suggest a lower revenue target. But given the industry climate and some preannouncements by other companies, I think the market was already telling us that something like this was a possibility.
FRANCIS: Dell's warning flew in the face of a broad-based relief rally in tech stocks. Chip and chip equipment makers had some of the biggest gains, with Intel, PMC-Sierra, Applied Materials, and KLA- Tencor all rebounding sharply. Also rebounding from its lows, Oracle: The database software maker initially sold off sharply on heavy volume after Robertson Stephens said the stock was overpriced.
ERIC UPIN, ROBERTSON STEPHENS: Oracle trades at a very rich multiple no matter how you slice and dice it, especially for a company on the top line that's growing 16, 18 percent year over year.
FRANCIS: But Oracle came to the defense of its beleaguered stock, which at its low is off 23 percent in two days. The company says there is no change in its outlook.
Tech investors remain edgy, though, and a warning from Dell just worsened the mood that already prevailed.
MARK DONOHOE, U.S. BANCORP PIPER JAFFRAY: You really haven't found a bottom yet. Trying to buy a tech stocks lately has been, you know, trying to grab a falling knife, and that just never works.
FRANCIS: Analysts that follow Dell have been saying that what the company needs is consistency, a steady drumbeat of rock-solid quarters with no nail biting. That has to happen before Dell's stock can recover, they say.
Well, that goal edged a little further out of reach today, with the stock trading down 25/26 after hours. It's a big loss for investors who bought it at the peak.
VARNEY: Oh, yes, it is. Bruce Francis, thanks very much.
Now, as we mentioned, the Nasdaq today bounced back after three straight sessions of big losses. But the tech downturn goes back further than that. Up until today, the Nasdaq had retreated in eight out of nine sessions. Even counting today's gains, the index is still down 8 percent in the last 10 sessions, and many individual stocks continue to struggle. All five of these tech names hit 52-week lows yesterday: all but two of them, Apple and CMGI, hit new lows today, including Dell, which, as we said, is slumping further in late trading.
And Dell wasn't the only tech giant out with late news today. Micron Technology came out with profits that beat expectations. It's a memory chip-maker and it earned a $1.16 a share in the fiscal fourth quarter, excluding a one-time gain. And that was 20 cents better than the consensus, though some were predicting profits as high a $1.15 share. Sales more than doubled to $2.6 billion.
Let's go right to Amanda Lang for a look at how Micron and Dell are trading in after-hours action.
Amanda, what are the numbers now?
AMANDA LANG, CNN CORRESPONDENT: Well, Stuart, a look at the way that Micron is trading after the bell will give you an indication of how the results are a little bit confusing. A 6:00 p.m. Instinet close on Micron, 47 1/8 -- that was up 3/16 -- on a million shares traded. I do have a more recent trading close that is down. It will be difficult to know where this is going to end up.
The results, as you say, blew past expectations, but Micron sells products for the PC market and its quarter ended in August. We know from recent warnings for many companies that September was a problem month, and Micron indicated on its call that it may be seeing some inventory returns from some customers. That has set some confusion among investors having a look at PC stocks. There are certainly continued fears of a slowdown in that business.
Dell, as you mentioned, off 2 1/2 in after-hours trading. It's trading at 25 11/16: this on fears that it's own revenue is slowing. That has sent other PC stocks down as well.
Let's look at a few of them: Gateway is down 90 cents after the bell, It's at $50 on volume of 15,000 shares. Compaq taking its worst beating, down $1.34. And Intel heavily traded, 1.4 million shares traded, but only a half lost after the bell.
Back to you, Stuart.
VARNEY: All right, Amanda Lang, thanks very much.
The twists and turns at the Nasdaq commanded most of the attention today, but there was plenty of action at the Big Board as well. And Terry Keenan is live at the New York Stock Exchange with all the big movers there.
Terry, what do you have?
TERRY KEENAN, CNN CORRESPONDENT: Well, Stuart, until that warning from Dell, people here were pretty pleased with the market performance today and the tech-led turnaround. But given the fact that IBM among others face same of the same revenue issues as Dell, all bets are off for tomorrow.
In fact, Big Blue was the real standout here today as rumors abated that it would see even more sales fallout from the weak euro. We already know that several analysts have trimmed IBM's revenue growth for the quarter citing the impact of the euro.
Well, the stock today traded as low as 108 before a stunning turnaround. As you can see, finishing there at 114. Hewlett-Packard following suit.
Also impressive here today, the economically sensitive stocks: That's something we've been seeing for the last couple of sessions. Today, International Paper led the way, moving up 1 7/8.
But drug stocks, though, and the financials were weak: Johnson & Johnson trading down around 90, off 2 3/16, while J.P. Morgan was off 3 1/4.
As for the market breadth, it was negative, as you can see, five to four in favor of decliners, while the volume here continues to be moderately heavy: Almost 1.2 billion shares changed hands.
EMC leading the volume leaders with an impressive comeback. You see the red arrow there, but that stock traded as low as 85 this morning. The comeback to 92 coming on very impressive volume.
And America Online also attracting some buying interest, up $3.41,, while Guidant was the disaster du jour here. The medical equipment company warning of a revenue shortfall.
Lucent having a strong session while Citigroup was way down in a weak financial sector, off $2.
And finally, our story stock this evening: shares of The Gap falling three-quarters in fairly light after-hours trading. The retailer announcing after the bell that September same-store sales were down 8 percent: this on top of some big declines that we saw in the month of August. As you can see, the stock already telegraphing this. It is down 57 percent year to date, and that is quite a markdown -- Stuart.
VARNEY: Let me turn this one around for a second. Remember Computer Associates last yesterday warned and then today the stock goes up $2 to $3 a share. Haven't seen that for a long time, have we?
KEENAN: No, we haven't, but you know, you can look at the chart of Dell, you can look at the chart of The Gap. The market has already factored in problems with some of these companies, and that's why we're not seeing as a severe a sell-off as we did when we got the real bombshell from Intel.
VARNEY: Good point. Terry Keenan at the Big Board, thanks.
Now, still to come on MONEYLINE, from high society to high crimes, Sotheby's takes a humbling fall. We'll look at who could plead guilty in the criminal case as early as tomorrow. And later, a special report on a new focus of the nation's leading brokerages: why companies like Charles Schwab are aggressively courting Asian- Americans. All of that's coming up on MONEYLINE.
VARNEY: Breaking news tonight from the art world: MONEYLINE has learned that Sotheby's and its former chief executive, Dede Brooks, will plead guilty to a violation of U.S. antitrust law, possibly as soon as tomorrow. This news comes less than a month after Sotheby's and its rival Christie's agreed to a $512 million civil settlement on price fixing. The criminal case will add more penalties and possibly prison time.
Susan Lisovicz has been following the story; she joins us now with more on this -- Susan.
SUSAN LISOVICZ, CNN CORRESPONDENT: Hello, Stuart. Christie's has what is called "conditional amnesty" in the criminal probe because of its early cooperation with authorities. That deal was announced in January and it tightened the screws around Sotheby's, the American multimillionaire who bought the British company in 1983, and the first woman to ever become its chief executive.
UNIDENTIFIED FEMALE: Sold for $165,000.
LISOVICZ (voice-over): Diana Brooks' exit from art world is even more sensational than her entry seven years ago. The first woman to head 256-year-old Sotheby's, the world's largest auction house, she was instrumental in securing one of its most successful collections: the $35-million estate sale of Jacqueline Kennedy Onassis.
Now Dede, as she is known in the art world, and the firm she led will plead guilty to violating U.S. antitrust law by fixings prices with their chief rival, Christie's. Sotheby's, earlier this year, arranged for a $300-million line of credit to handle penalties in the civil and criminal case. But art experts say the financial impact is still huge.
ANDREW DECKER, EPPRAISALS.COM: It's an enormous hit. They've got 100 million from the civil settlement; and for a company that has net income of, you know, $20 to $30 million a year, that's huge.
LISOVICZ: Diana Brooks is cooperating with federal authorities. That cooperation involves information about the man who hired her, Sotheby's former chairman, multi-millionaire shopping mall developer Alfred Taubman.
PETER SULLIVAN, GIBSON, DUNN & CRUTCHER: The government, when it settles cases, ordinarily seeks jail time for officers and directors and high executives who are implicated in the conspiracy.
I know that is something the government tries to get and will try to get it in this case, no doubt.
LISOVICZ: Since Christie's and now Sotheby's and Diana Brooks have struck deals with the government, Taubman, who is 75, is the last man standing in the case. And that person is typically the most vulnerable to a harsh penalty -- Stuart.
VARNEY: All right, Susan Lisovicz, thank you.
Let's do a brief check on Sotheby's trading action today. Shares ended up just over 1/2 point. It has been a rough year for the stock, but it is up more than 20 percent just in the last month. BID is the symbol for Sotheby's.
Tonight, another deal in the rapidly consolidating financial industry: Firstar announced plans to buy its rival U.S. Bancorp. Analysts call the $21 billion deal a good geographic fit. It also gives Firstar a foot in the profitable business of investment banking, with U.S. Bancorp's Piper Jaffray.
And it is a family reunion of sorts: the chief executives of the two banks are brothers. For years, Jack and Jerry Grundhofer have been more competitive than cooperative, swallowing up regional banks at a torrid pace. But with today's deal, sibling rivalry may be taking a back seat. The two brothers will run the combined company, which is going to be called U.S. Bancorp, by the way. Jack Grundhofer will be the chairman until his planned retirement in 2002. His younger brother, Jerry Grundhofer, will be president and CEO.
Now, check reaction to today's announcement: Firstar down 2 1/4, U.S. Bancorp climbs more than 1 3/4.
Just ahead, the presidential candidates are both claiming the upper hand after last night's debates, but we'll check out how their competing economic plans really measure up. We'll be back. (COMMERCIAL BREAK)
VARNEY: In tonight's "MONEYLINE Profile," A. Alfred Taubman, the former chairman of Sotheby's. He's known as the man who has gone from malls to Monets. With a $5,000 investment, he built a real estate empire which, today, is one of the largest developers of shopping centers in the country. In 1983, Taubman bought into the art world, overtaking Sotheby's for $139 million.
That has turned to scandal. Last week, Taubman agreed to settle two civil suits, paying a total of $186 million, and now Sotheby's could plead guilty tomorrow to criminal charges. There will be more on this. MONEYLINE will be back in a moment.
VARNEY: In our news digest this evening, hope tonight for an end to the violent clashes between Israelis and Palestinians.
Wolf Blitzer joins us from Washington with this late-breaking story -- Wolf.
WOLF BLITZER, CNN ANCHOR: Thank you, Stuart. In a late development today, Palestinian Authority President Yasser Arafat and Israeli Prime Minister Ehud Barak have tentatively agreed on a plan to stop the escalating violence in the Palestinian territories and Israel.
The deal was reached after marathon negotiations mediated by U.S. Secretary of State Madeleine Albright in Paris. They were still talking into the night to work out final details. The deal hopes to put an end to a week of clashes that have left more than 60 dead and hundreds injured.
In other overseas news, a surprise ruling today from Yugoslavia. The constitutional court annulled parts of the country's contested presidential election. The opposition has claimed an outright victory for its candidate, Vojislav Kostunica, but Milosevic has not conceded defeat.
It appears that, under the ruling, parliament must set a new election date, buying Milosevic more time in office. The opposition has been staging protests and strikes to put pressure on Milosevic to step down. Today, striking miners broke through a line of police officers trying to hold on to control of a coal mine.
In the U.S. presidential campaign, the candidates did not miss a step today. They were right back on the campaign trail after last night's debate. Vice President Al Gore and Texas Governor George W. Bush hit key battleground states, looking to capitalize on what both sides interpreted as strong debate showings.
Those are some of the top stories. Join us for more on "THE WORLD TODAY." That's at 8:00 p.m. Eastern, 5:00 p.m. Pacific -- Stuart.
VARNEY: Wolf Blitzer in Washington.
Now, an estimated 35 million people tuned in last night to see the presidential candidates square off. The facts and figures flew wildly through the evening, with Al Gore tearing into the Republican tax plan, and George Bush charging the vice president with using "fuzzy math." But exactly where do the numbers stack up?
Bill Dorman took out his calculator. Let's see what he found.
What do you have, Bill?
BILL DORMAN, CNN CORRESPONDENT: Well, conflict. Imagine that, Stuart.
Federal Reserve Chairman Alan Greenspan has said time and time again that we should allow the budget surplus to grow and not spend it. But Greenspan's not a politician. If you take two politicians, add one prospective surplus, and you'll have the big fight over how to spend it.
(voice-over): It's the budget surplus, stupid. That's what the biggest economic fight comes down to this election season.
THOMAS GALLAGHER, POLITICAL ECONOMIST, 1ST GROUP: The biggest issue for the financial markets is what to do with the surplus.
DORMAN: During the debate, Vice President Gore said his opponent will use the surplus for the wealthy, while Governor Bush said his opponent's surplus plan favors big government.
GORE: Under Governor Bush's tax-cut proposal, he would spend more money on tax cuts for the wealthiest 1 percent than all of the new spending that he proposes for education, health care, prescription drugs and national defense all combined.
BUSH: Under Vice President Gore's plan, he's going to grow the federal government in the largest increase since Lyndon Baines Johnson in 1965. And we're talking about a massive government, folks. We're talking about adding to or increasing 200 new programs, 200 programs, 20,000 new bureaucrats.
DORMAN: Both candidates complain about "fuzzy math," or numbers which don't add up. In fact, Governor Bush's own office says his plan does deliver more of a tax break to the wealthy, but it also includes all Americans. And the vice president's campaign says Gore's plan would increase government, but would also pay down the national debt faster than Governor Bush.
Keeping track of all these numbers and promises over time is tough. Earlier this year, Vice President Gore told MONEYLINE it's critical to be accurate with projections of the surplus.
GORE: And having responsible numbers that are not overly optimistic is one of the keys to maintaining the confidence of the markets and maintaining the harmony between fiscal and monetary policy.
DORMAN: The Congressional Budget Office says the budget surplus, including Social Security, should total more than $4.5 trillion over the next 10 years, more than half of it a temporary surplus from the Social Security trust fund. Governor Bush recently told MONEYLINE what he plans to do with the overall surplus.
BUSH: Of that, I want half the money to go to Social Security. I want some of the money -- nearly a trillion -- to go for projects like prescription drugs for seniors, money to strengthen the military to keep the peace. I've got some views about education around the world.
DORMAN: The governor's campaign defends the use of those numbers. But they don't quite add up. His tax cut tops $1.3 trillion. But his new spending is $475 billion, with interest costs at $313 billion. Vice President Gore plans $480 billion in what he calls targeted tax cuts.
Gore's big-ticket item is government spending: $870 billion, with interest costs estimated at $253 billion.
DORMAN: Future debates are certain to feature more fights about numbers. But economists say there's another factor to think about. Any spending or tax plan has to be approved by Congress. And unless the same party wins the White House and Congress, any economic plan put forth in this campaign will probably face some adjustments before it becomes law -- Stuart.
VARNEY: Key points for the markets, too. Bill Dorman, thanks very much.
In tonight's "Tech Watch": a billion-dollar deal in the disk- drive industry. California-based Maxtor -- I'm sorry -- yes, that's Maxtor. It announced that it is going to buy its rival Quantum's hard-drive unit in an all-stock deal. The combined company will be neck-in-neck with Seagate for the title of No. 1 disk-drive-maker in the world.
And checking on the stocks today, Quantum's tracking stock of its hard-drive unit shot up more than 30 percent, gaining nearly 3 3/4 on the day. Maxtor lost less than 1/2 point.
And coming up: The profit potential at an online retailer is called into question on Wall Street. We'll check out what rocked the boat at Amazon.
(COMMERCIAL BREAK) VARNEY: In our next half hour, here's what we have for you: Dell warns about sales, while Micron surprises to the upside. We'll check out the after-hours action.
(COMMERCIAL BREAK) ANNOUNCER: MONEYLINE continues. Here again, Stuart Varney.
VARNEY: In tonight's headlines, another tech power house warns of poor sales: Dell Computer. Weighing down the top line, a familiar culprit, weak demand in Europe. A better showing from a rising chip- maker, though. Micron Technology blows past profit forecasts in an after-the-bell report.
Plus, fresh reports swirl about a new look for AT&T, but after a run of restructuring rumors, will AT&T investors buy the story of a telecom turnaround?
First, though, more on tonight's top story: Another after the bell warning, and once again it's from a PC maker. Last week, Apple Computer issued a profit warning. Tonight, Dell Computer is the one that's feeling the heat. It said it now expects third-quarter revenue will fall 3 percent below expectations due to weak demand in Europe. Dell said it still remains on track to meet third-quarter profit estimates, but the fourth quarter, that could come up short. Dell estimates earnings in the last quarter of 2000 could be 1 to 2 cents below forecasts.
In after-hours trading, Dell Computer was down 2 1/2 points, and that was in very heavy volume. And those losses could pressure the Nasdaq tomorrow and eat away at today's comeback. The composite index did finish up more than 67 today after losing about 113 yesterday.
The Dow industrials also moved higher today to finish the session up more than 64 points at 10,784. As for the S&P 500, it, too, finished higher, a gain of nearly eight points there. The closing level was 1,434.
Now, checking some of the day's biggest movers: IBM jumped more than four points and fellow Dow component Hewlett-Packard gained two. Cisco Systems also finished the day higher. It was up more than two points, closing just over 58 1/2. While other Internet stocks finished the day lower, Yahoo! managed a gain of nearly four.
And look at this, PMC-Sierra, well, that soared more than 10 1/2 points.
For a look at some of the other big movers on the Nasdaq -- and there were plenty of them -- let's go to the Nasdaq marketsite. Here's John Metaxas -- John.
JOHN METAXAS, CNN CORRESPONDENT: Stuart, you know, around 2:30 today the Nasdaq looked as if it may be ready to stage one of those late-day sell-offs. But instead, we had a dramatic turnaround led by a bounce in the oversold sector: the chip stocks up some 6 percent on the day. Internet stocks strong as well.
Dell Computer, of course, was down 38 cents, ahead of its after- the-bell news. This is a new 52-week low, and it's interesting how the market sometimes can discount negative news before the news even comes out. Oracle was a stock that got hit hard early on but came back with the rest of the market to finish down $1.50. It had traded close to $60 a share. Robertson Stephens downgrading it today after the analyst meeting yesterday, but most of the brokerage houses made positive comments about the stock.
Among the comeback kids today, the chip stocks, as we told you, Intel up 4 percent on the day helping to lead this market higher. It even brought back some of the e-commerce stocks. Ariba surging more than $17. We had both Credit Suisse and Prudential saying this may give you some positive surprise when they report their earnings.
Finally, lest you think that the earnings warnings only come in the tech sector, Knight/Trimark, the leading market -- one of the leading market makers at the Nasdaq, warning that the Nasdaq stock market weakness and the cost of building their global operations may cause them to miss expectations. The stock down 11 percent on the day.
I want to show you the six-day chart. You'll recall we had that five-session losing streak: the rally last Thursday, then the Apple news hit. We had a three-session losing streak. The rally today, now the Dell news has hit. That has been a hallmark of this Nasdaq: an inability to continue rallies.
Let's see if that holds true tomorrow -- Stuart.
VARNEY: We shall. Another busy day. John Metaxas, thanks.
A blowout report from Micron Technology after the bell. The memory chip-maker soared past profit forecasts, beating fiscal fourth- quarter estimates by 20 cents a share. That's what it beat the estimate by.
Steve Young has been crunching the numbers. He joins us with more on this one -- Steve.
STEVE YOUNG, CNN CORRESPONDENT: Stuart, Micron reported powerful results. It's the country's biggest dynamic memory chip-maker, the third biggest D-RAM company in the world, and it says its customers are expecting strong demand during the final three months of the year.
YOUNG (voice-over): Because of the extraordinarily volatile price of memory chips, estimates for Micron Technology earnings had been all over the lot: 75 cents a share at the low end, 96 cents the consensus, $1.15 the upper range.
But the company knocked the Silicon off the chip, beating the boldest estimates by a penny. If you include a one-time gain, it would have been another 4 cents higher.
Net income was $727 million for the company's final fiscal quarter on sales of more than $2 1/2 billion. On its conference call, Micron said there was a sales surge as PC companies did extra ordering for the normally strong back-to-school season.
MONA ERAIBA, ROSETTA MANAGEMENT GROUP: Micron is starting to push hard on flash memories and S-RAM, which are products that are used more in hand-held devices, et cetera. But I still think the PC market overall globally is still very healthy. Europe is slower, but definitely the global market is still a healthy market.
YOUNG: The Boise, Idaho company's blazing results follow a five- month period where the stock stuck around $40, then a surge, followed by a searing September which saw nearly half the company's value go down in flames.
Analysts expect Micron's financial results to turn the semiconductor sector into a scorcher once again.
CHARLES BOUCHER, BEAR STEARNS: In general, the semiconductor stocks have followed Micron to a large extent. I think there's a lot of pessimism on the street that doesn't reflect some of the fundamental strength that we continue to see in the actual markets themselves, provided we don't have some kind of an economic collapse or economic recession.
YOUNG: Now, all this may bode well for companies that make hand- held devices: wireless gadgets, digital cameras and phones. Micron says while PC companies are still its biggest customers, those other markets are growing faster, and that could be the most important source of the strengthening demand.
There's a caveat to Micron's earnings: Its latest quarter ended in August. There's a lot of concern for a September slump in demand for many tech firms. That's one reason Micron shares are going nowhere after-hours, up just 3/16 to 47 1/8 in heavy trading. But again, that's after a gain in the regular session of nearly four -- Stuart.
VARNEY: After a report like that, it's just hard to say what's going to happen to the stock, isn't it? Steve Young reporting, thank you.
Despite today's after-the-bell gains, companies like Micron Technology have taken a huge hit in the past few weeks as investors grow more concerned about weak sales in the PC industry. While Micron is still up for the year, its shares have taken a beating since the end of August, down nearly 43 percent.
As you might imagine, Intel is also sharply lower, down 44 percent since the end of August. That chip-maker issued its own third-quarter revenue warning just last month, late last month, in fact.
Dell Computer down more than 35 percent since the end of August, and Apple Computer, it has actually fared the worst, down 61 percent during that same time period.
Another company that's been hit particularly hard of late, Amazon.com, and today, one analyst said it may have even more to worry about then just a struggling stock.
Terry Keenan goes behind the numbers from the New York Stock Exchange.
Terry, what have you got on this one?
KEENAN: Well, Stuart, when it comes to spin, Amazon.com is a category killer in getting Wall Street to put the best face on its money-losing business model. But finally, with the stock down 68 percent from the highs hit last December, analysts are starting to raise some serious questions. And today, one analyst took her skepticism even further.
Lauren Cooks Levitan of Robertson Stephens decided to do some heavy-duty shopping on Amazon, and what she discovered was that the company's current business model is incompatible with profitability. In other words, according to her, it can't make money the way it's currently doing business.
Here's the problem, says Levitan. With 18 million different items up for sale, Amazon has almost as many products as it does customers, a retailing nightmare. But it gets even worse, as Levitan discovered when she went shopping for multiple items on Amazon: say, books and electronics. Amazon had to split the order into different shipments and eat the extra cost. Now, the loss to Amazon, according to Levitan, $2.91 an order.
Now, Levitan says that Amazon must reduce these split orders or it may never make it into the black.
(BEGIN VIDEO CLIP)
LAUREN COOKS LEVITAN, ROBERTSON STEPHENS: The main thing they can do is by having a more manageable inventory base, by having fewer items, and they can use merchandising skills to give the appearance that they have millions of items available, but really be focusing customers, helping them edit the assortment, and drive them toward certain purchases. It means they can make bets on a fewer -- on a smaller, tighter group of items and at the same time not necessarily dilute their brand proposition one bit.
(END VIDEO CLIP)
KEENAN: Well, Amazon, of course, has spent millions in a bet to provide what it calls the biggest selection on Earth, and the bulls point out strong sales growth in its electronics businesses and others. But the Street will be watching closely for these fulfillment costs to come down as we head into the holiday season and beyond.
As for the stock, Stuart, after trading down $4 this morning, it finished up nearly a dollar, helped by the overall rally in tech shares. But a terrible year for Amazon stock. VARNEY: You know, that was a very harsh critique of Amazon's business model, was it not?
KEENAN: It was, and it's interesting, because she and her staff did go online, they did place a lot of orders for different products, and this is what they came up with. And it's important for Amazon to get the message across that it's trying to bring these fulfillment costs down. They had a big meeting with analysts just a couple of weeks ago, brought them out to a fulfillment center in Nevada just to underscore that. But Levitan doing some legwork of her own and coming up with this analysis.
VARNEY: All right, that's Terry Keenan at the Big Board. Thanks, Terry.
Here's what's next on MONEYLINE: What is the fate of AT&T? It's a question being debated not just in Basking Ridge, New Jersey, or on wall Street, but in the press as well. We'll bring you that story next.
VARNEY: In tonight's MONEYLINE Focus: awaiting a move from AT&T. The shares of AT&T have slumped further and further this year, more and more headlines have emerged detailing all the drastic proposals that are on the table.
One that emerged today, a proposed spin-off for AT&T's consumer long-distance unit. Many believe that the stories are trial balloons, floated by those with a vested interest, trying to gauge investor reaction. Peter Viles looks at the connection between the media, and the markets, and the management -- Peter.
PETER VILES, CNN CORRESPONDENT: Stuart, there have been so many reports now about possible restructurings at AT&T, so many different scenarios floated into the market, that some investors are just beginning to run out of patience.
VILES (voice-over): For AT&T, it was just another wacky Wednesday. There were published reports that management wants to spin off its consumer long distance division and wants to arrange mergers with British Telecom and Nextel. AT&T, as is its custom, had no comment. And investors didn't have much to say, either. AT&T shares gained only fractionally.
MEL MARTEN, EDWARD JONES: Part of AT&T's strategy here with all of the talk in the market about every possible combination or option that AT&T might take, could be to judge the market's reaction. And, you know, certainly, so far a lot of the options the market hasn't had a big reaction to.
VILES: The last big reaction by investors was in early May, when the company warned of weak earnings. That's when speculation began about a spin-off of the long distance unit. There were reports in July that AT&T's biggest individual shareholder, John Malone, preferred to make it a tracking stock and reports in August that AT&T had held informal talks with British Telecom.
AT&T has held its tongue through all of this. Its stock has slipped to a three-year low, and some see all the trial balloons as evidence that AT&T under Michael Armstrong cannot move as quickly as it needs to.
ART HOGAN, JEFFERIES & COMPANY: Clearly it's not necessarily Armstrong's problem that it's a more competitive environment, but the pace at which he's adjusted to that comes under question. So I think perhaps the best answer would be a shake up at the top, and not floating another tracking stock and not spinning off another division, but perhaps just changing things at the top and changing the way they do business.
VILES: AT&T's last restructuring has not helped. Since it was spun-off as a tracking stock in April, AT&T Wireless has dropped 26 percent, creating a major drag on AT&T's stock.
VILES: One complicating factor in all of this: federal regulators. The FCC said today it would closely examine any proposed spin-off of a long distance division to make sure that such a move is in the best interests of consumers -- Stuart.
VARNEY: Peter Viles, thanks very much. And a brief returning, AT&T's stock was up 5/8, but it closed below $30 a share, still at 29 3/4, despite all the speculation.
Next, we're going to talk to a stock-picking star who scours the market for real value and has seen his fund gain an impressive 30 percent so far this year. Find out what he's buying, next on MONEYLINE.
VARNEY: Tonight's stock picking star, an investment style that has fallen out of the fashion on Wall Street. Many portfolio managers have turning their backs on value investing.
We're joined now by one fund manager who is wholeheartedly embracing it. Edward von der Linde manages the Lord Abbett Mid Cap Value Fund. And so far this year, the fund is trouncing the averages. It is up more than 30 percent after returning just 4 percent last year.
You may not have heard of some of the fund's top holdings, but they have posted some spectacular returns, like Caremark RX, up 117 percent, XL Capital up 47 percent, TECO Energy up 51 percent year-to- date.
Joining us with more, fund manager Edward von der Linde. Edward, congratulations and welcome to MONEYLINE.
EDWARD VON DER LINDE, LORD ABBET MID CAP VALUE FUND: Thank you very much.
VARNEY: You describe yourself as a real value guy.
VON DER LINDE: OK,
VARNEY: Wait a second. Do you see value now in Lucent, let's say $32, Intel at $42, Dell in the mid-20s? Have they come down far enough to make them a value play for you?
VON DER LINDE: Well, first off, they are not necessarily a mid cap stock.
VARNEY: My fault.
VON DER LINDE: Which is fine. But no, they haven't. Xerox may have, though, and that's now is a mid cap stock by our definition. Don't confuse price with value. That's one of the things we've seen the market doing over the last few years, is if the price goes down, you buy it because it's cheaper. Cheap does not mean it's a value.
Stuart: Are you looking for a PE ratio that's very low? Is that an indicator to even jump on?
VON DER LONDE: We're actually looking more at the intrinsic value. What can or what should a company and its assets earn? What's it's normalized returns? And then we try to find what catalyst is there to make it get back to that level. So it's not PE, that will fall out of that equation, but it's more of an intrinsic value type of methodology.
VARNEY: You've got about 20 percent of your fund's money in utilities. Edward, it's years since we've had a utility investor on this program. What is the play in utilities at the moment?
VON DER LINDE: Well, it's first the deregulation that's going on across the country. That's going to cause a tremendous amount consolidation because this country can't support the 100 plus public utilities that are out there.
A lot of folks don't want to recognize that right now because they represent such a small portion of the S&P 500. But as deregulation continues across the country, and we've already got half the states that have deregulated, they going to consolidate because that's the only way they can survive.
Stuart: So what are you looking for in a utility company specifically? It's not a low PE, what are you looking for?
VON DER LINDE: Well remember, what's happening -- in the regulator universe, they can only get a certain return on their asset base because it was regulated. Now what's happening when they deregulate is they're given the opportunity to increase the turnover on their assets. For example. If you have a management that's enlightened and a deregulatory plan that allows them to realize a return on those assets, you have the equation for a very, very good stock. VARNEY: OK, let's turn this one around for a second. You were buying oil and energy companies in, what, late 1998 when oil was at $10 a barrel. Now those energy companies had a really nice run up.
VON DER LINDE: Yes.
VARNEY: Do you see value in them or is it time to sell?
VON DER LINDE: Actually, there still is value in them. But the short-term, the near-termers will be influenced by oil prices. But these companies still haven't started to discount $24 a barrel oil in their earnings estimates.
VARNEY: And you're not selling them yet?
VON DER LINDE: We have moved through the group as time has gone on from the domestic integrateds to more of the natural gas and the oil service companies. So we migrate through the group, but no, we are not reducing our energy exposure at this point.
VARNEY: Edward von der Linde, we thank you very much for joining us and congratulations on a 30 percent performance.
VON DER LINDE: Thank you. Thank you very much.
VARNEY: Thank you.
Coming up next, the new face of investors being courted by Wall Street.
VARNEY: Wall Street has long needed to learn different languages to appeal to international investors. And that courting of clients has taken on a new intensity in terms of the Chinese community living in the United States.
China boasts one of the world's highest savings rate, hovering about 40 percent. And many Chinese immigrants to these shores have retained their desire to make their money work for them. And Wall Street is taking notice.
Allan Chernoff has the story.
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): There is big demand for IRA accounts and other investment vehicles at the TD Waterhouse brokerage in Flushing, New York. The neighborhood is home to many Chinese-Americans born in the U.S., as well immigrants from Hong Kong and the mainland. And brokerage firms are now aggressively courting them.
UNIDENTIFIED MALE (through translator): If you have money, you must go into the market. But if you don't have money, there's nothing you can do. CHERNOFF: The talk here on Main Street is almost as likely to be about the price of plums as Priceline stock. Charles Schwab is Wall Street's leader in serving Asian-Americans. The company's Chinese- language Web site last month had five million transactions, trades and requests for data, a fivefold increase from the same month last year.
Schwab estimates Chinese-Americans hold $150 billion in investable assets. Already the firm has 14 Chinese-language offices in the U.S., and it plans five more.
NICK HSIEH, CHARLES SCHWAB & CO.: The growth rate is tremendous. For instance, when we opened at this branch here two years ago, we have done a tremendous amount of job in bringing in customer assets. The second year, we almost doubled that.
CHERNOFF (on camera): It's not just Flushing. A high-percentage of Schwab's Asian customers are Mandarin speakers who live in Silicon Valley. At TD Waterhouse, the average Chinese-American account is more than 50 percent the size of the firm's typical account. And trading volume among the Chinese is growing at more than twice the rate of the firm's average account.
FRANK PETRILLI, PRES. & COO, TD WATERHOUSE: The Asian markets are more volatile than the U.S. markets. And so they have migrated toward a more trading mentality. We've also attributed it to the fact that people who are immigrants generally are entrepreneurial and basically have a higher-risk tolerance than others.
CHERNOFF: To be sure, plenty of Chinese-Americans prefer to invest conservatively.
UNIDENTIFIED FEMALE: I try to avoid something I really don't know, like biotech. Everybody says it's good money. But I don't know them at all.
CHERNOFF: Conservative or aggressive, it can't hurt to observe Chinese good-fortune traditions, which is why TD Waterhouse puts a lucky eight in account numbers for Chinese, who will also find good luck feng-shui goldfish at the Main Street branch office.
CHERNOFF: Yet one more example of the marketing effort: Charles Schwab's name in Chinese has four characters which translate as: "well established trustworthy asset manager" -- Stuart.
VARNEY: Smart, isn't it? Is there actually specific targeting of high-net-worth Asian immigrants in Silicon Valley?
CHERNOFF: Oh, there's no question about it. And they're well aware -- Schwab being based in San Francisco -- that a tremendous percentage of the big entrepreneurs there are Chinese. In fact, a University of California study found that between 1980 and 1998, 17 percent of the high-tech companies in Silicon Valley were being run by Chinese-Americans.
VARNEY: That's a great statistic. Allan Chernoff, thanks for that report. Many thanks.
OK, up next, "Ahead of the Curve: some of what you need to know tonight before tomorrow's markets open. And yes, you are watching MONEYLINE.
VARNEY: Take a look at some of what could move the markets tomorrow. Dow component Alcoa is due to report third-quarter earnings. The forecast is for 42 cents a share there. And, of course, keep an eye on Dell, which issued an after-the-bell sales warning -- and also Micron Technology, which beat profit expectations in its late-day report today.
On the economic front, the Fed releases the minutes from its August meeting -- also expect jobless claims numbers and same-store sales figures for September. And the vice presidential candidates will debate in Kentucky.
Now, to stay a step ahead of the markets, tune into "AHEAD OF THE CURVE" every morning at 5:00 Eastern right here on CNN. And remember, please, MONEYLINE really wants to hear from you. Send us your comments, your questions, your feedback by e-mail to firstname.lastname@example.org.
A program remainder: Tomorrow on MONEYLINE, we will be joined by the chief executive officer of GM Hughes. That is Michael Smith. He's going to be our guest tomorrow.
That is MONEYLINE for this Wednesday. I'm Stuart Varney. Good night from New York.
"CROSSFIRE" is next.
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