Dow Declines 47.75 to 10,229.15; Nasdaq Tumbles 17.04 to 1,842.97; Cisco Reorganizing Into 11 Technology Groups
ANNOUNCER: From the heart of New York City, this is LOU DOBBS MONEYLINE. Sitting in tonight, Jan Hopkins.</s>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?</s>FRED KATAYAMA, CNN CORRESPONDENT: A late day surprise, Jan, from Cisco. The company is reorganizing and offering some hopeful hints about the future.</s>STEVE YOUNG, CNN CORRESPONDENT: Lucent offers a lame near-term outlook but says: "Just you wait until 2003."</s>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.</s>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."</s>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?</s>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?</s>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.</s>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.</s>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?</s>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.</s>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?</s>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.</s>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?</s>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.</s>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.</s>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.</s>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.</s>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.</s>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.</s>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.</s>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.</s>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?</s>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.</s>HOPKINS: Now, your motto is slow and steady wins the race. What do you mean?</s>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.</s>HOPKINS: And that's really what your message is to investors in this kind of climate?</s>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.</s>HOPKINS: Also, you say that the small companies tend to ride out these difficult times better.</s>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.</s>HOPKINS: Does the leadership of a company really make the difference?</s>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.</s>HOPKINS: So give us some examples of some of the companies that you are invested in and that you still like?</s>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.</s>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?</s>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.</s>HOPKINS: And Hasbro? People buy toys regardless?</s>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."</s>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.</s>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.</s>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.</s>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.</s>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.</s>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.</s>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.</s>YOUNG: Umeda foresees a much tighter battle in optical networking, in which the front runner could change from quarter to quarter -- Jan.</s>HOPKINS: Lucent stock didn't do very much?</s>YOUNG: No, it's down a little bit.</s>HOPKINS: So, it's a long time before this company recovers.</s>YOUNG: Patience, patience.</s>HOPKINS: That's the theme tonight. Thanks, Steve. Coming up next on</s>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.