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Moneyline News Hour

Investors Take Flight as Dow, Nasdaq Tumble; IBM, Intel Report Earnings; Net Companies Take Desperate Measures to Hold Place on Nasdaq

Aired October 17, 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, CO-HOST: Tonight on MONEYLINE, investors take flight, the Dow tumbles, the Nasdaq slides for the eighth time in nine sessions.

WILLOW BAY, CO-HOST: Two tech titans, Intel and IBM, with earnings after the bell, we'll crunch the numbers and track all the late trading action.

VARNEY: Media stocks take a brutal beating; Time Warner, Disney and News Corp. all tanking. We'll ask Seagram's boss Edgar Bronfman and Vivendi's Jean Marie Messier what's hurting this sector.

BAY: And they're the markets' sore loser: Web stocks. We'll check out the desperate measures some Net companies are taking just to hold onto their place on the Nasdaq.

NARRATOR: This is MONEYLINE. Reporting tonight from Los Angeles, Willow Bay; and from New York, Stuart Varney.

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

VARNEY: And I'm Stuart Varney.

Our top story tonight: Intel and IBM, yes, the wait is over -- after a day of hand-wringing and finger-crossing, the numbers are out.

The two tech powerhouses reported their third quarter earnings after the bell. Chip giant Intel said that it had done very well to a lot of nervousness in the market today; and tonight's two reports do not put all of those fears to rest. Far from it. Intel, yes, it did beat the Street's already lowered expectations, but IBM, one of the few bright spots during the day's trading, it fell short of analyst's expectations and in after-hours trading, IBM is down $12 at $101 a share.

We have extensive coverage for you tonight: Steve Young with Intel's after-the-bell report, Allan Chernoff on IBM and Amanda Lang with after-hours trading.

And we begin with Steve Young -- Steve. STEVE YOUNG, CNN CORRESPONDENT: Stuart, given the sort of mixed results -- after-hours, Intel is trading up only three-eighths; even the company said it was a mixed bag.

While the number of flash memory chips out the door did grow, the number of microprocessors it was able to sell was flat.

(BEGIN VIDEOTAPE)

(voice-over): After lowering Wall Street's expectations, the world's biggest chip company delivered more than most analyst anticipated. Intel exceed Wall Street's earnings consensus by three cents a share. It also reported a 19 percent jump in revenues to $8.7 billion and net income of nearly 3 billion, which was up 52 percent from a year ago, but down 18 percent from last quarter.

As for sales growth from last quarter, the company delivered 5 percent at the high end of already lowered expectations. Gross margins improved, but sales in Europe remain a worry. Still, Intel sees overall growth in the final quarter of the year -- in the 4 to 8 percent range, but that's less than usual.

Intel's financial results come after a six-week squeeze on the stock that has sliced the price more than 51 percent, wiping out $260 billion of Intel's market value.

JACK GERAGHTY, GERARD KLAUER MATTISON & CO.: It's still got a reasonable high multiple, but it's still got an excellent record and Intel has two things in abundance: engineers and money. And if there's any slowdown coming, Intel, I think, is going to fare a lot better than a lot of other companies.

YOUNG: CEO Craig Barrett said in a statement, the company expects growth across most of its product lines and he highlighted rapid growth in Intel server business.

MONA ERAIBA, ROSETTA MANAGEMENT GROUP: On the conference call they were cautiously optimistic; they were cautious because of Europe and the concern over the oil prices, et cetera; but they're optimistic because of their execution. It seems like they really improved execution.

(END VIDEOTAPE)

YOUNG: So, again, early investor reaction is hardly euphoric but, given the gloomy tone of recent Wall Street research, some analysts said that these results should provide at least some relief for the chip sector tomorrow -- Stuart.

VARNEY: All right; Steve Young, thanks very much.

Now let's check how Intel is doing in after-hours trading for you: it's up 7/16 at 36 5/8. And we will have more on the chip maker's earnings with chief financial officer, Andy Bryant, coming up for you in about 10 minutes. BAY: Well, we've gotten the news about Intel; the other powerhouse with profits out is IBM. In after-hours trading, shares of IBM, as Stuart mentioned, are falling, down 12.

Allan Chernoff listened in on the conference call, and he joins us now from the earnings desk with more on this tech bellwether -- Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: OK, thank you Willow.

IBM did make its numbers but, clearly, there are problems over the company. That's why the stock is plummeting in after-hours trading.

First of all, let's get right to the earnings per share, $1.08, right in line with expectations and that was a gain of 20 percent compared to the year ago quarter -- 20 percent there. But revenues up only 3 percent at $21.8 billion. There's the disappointment and plenty of trouble spots to talk about.

First of all, supply shortages in microelectronics, service sales -- they trailed off in the middle of the quarter. And software sales, they hit a real trouble spot right at the end of the quarter in September, and these problems are not going away immediately because the new servers that IBM is going to be shipping won't be out until December. A lot of clients are holding back on their orders and even canceling their orders until those new servers do come out. And also the company said it is still suffering from some supply problems in that microelectronics area.

Here's what the chief financial officer John Joyce had to say about the fourth quarter outlook: revenue growth should be stronger than in the third quarter. He was also optimistic about the cost situation, saying that we are doing our blocking and tackling; but, with regard to the currency situation, the impact in the fourth quarter may well be larger, and a lot of investors concerned about that.

The company also said that revenue for fiscal year 2001 should actually be in the high double digits, the gains over there -- but, actually, I'm sorry: the revenue in the high single digits, but the earnings per share, over there, talking about high double-digit gains.

Nonetheless, not enough for investors in the after-hours trading today. Back to you.

BAY: Allan Chernoff, thanks for crunching those numbers on IBM.

Now Amanda Lang is watching after-hours trading as well as crunching those earnings reports. She joins us now with the latest action -- Amanda.

AMANDA LANG, CNN CORRESPONDENT: Well, as you've heard, Willow, Intel is moving up just slightly. IBM getting crushed after hours, down 12 at 101. Elsewhere, we do have earnings reports from communications company Copper Mountain, that stock is off 14 1/2 at 12 3/8. The company reported earnings of 27 cents per share; that was one cent better than expected, but it warned on its fourth quarter and said 2001 could also fall short.

RealNetworks posted earnings that were in line with expectations of four cent a share and revenue that was up 92 percent; but the after-hours trading has the stock down 3 15/16. It's trading now at 17 3/4. And Covad communications is off 2 3/4 at 5 7/8, that because it posted a wider loss than the first-call consensus of $1.18. It came in at $1.22 with revenues up 15 percent -- the stock reflecting deep disappointment of investors after the bell -- Willow.

BAY: Amanda, thanks; and we should point out that we do have Covad CEO Robert Knowling on later in the program. Amanda Lang,m thank you -- Stuart.

VARNEY: All right; nervous investors today didn't want to wait for those after-hours results. They sold ahead of them and that sent stocks tumbling. Sectors particularly hard-hit included banks, brokers and chip equipment makers.

At its low, the Dow was down 212 points, coming within just 26 points of the 10,000 level. In the end, though, the Dow finished down 149 points on the day's trading. As for the Nasdaq, well it dropped by 117 at its worst, but managed to bounce back to finish down 76 points. That's still more than 2 percent -- it closed out just under 3,214. The S&P 500 dropped a sharp 32 points, but it did come off those lows to finish down more than 24 1/2 at just under 1,350.

Several big names weighed heavily on the market today: America Online dropped more than nine. It was the most actively traded stock on the Big Board. Time Warner, it's merger partner and parent of this network, fell more than 12. It closed at $65.51. Micron Technology ended the day down more than 4 1/2 points, that on analyst downgrades. And Texas Instruments down nearly 3 1/2. As for Teradyne, it ended off almost 9 1/2 after warning of slowing sales in the fourth quarter.

For more on the session, we head now to the New York Stock Exchange. Here is Terry Keenan.

What's happening now, Terry?

TERRY KEENAN, CNN CORRESPONDENT: Well, Stuart, about the only thing positive traders had to say this afternoon is that it could have been a lot worse. The Dow and the Nasdaq did battle back from their lows, as you mentioned, and we didn't close below those worse levels of last week.

But all in all, it was really a terrible session with the banking and the chips stocks leading the way lower. And technicians tell me that unless the Philadelphia Semiconductor index and the banking index start to recover, the rest of the market will not be able to follow suit.

There was also a lot of general disbelief that many of the blue chip Internet names crumbled from already depressed levels. I'll have more on that in the next half hour. Moving on, now, to some of Dow losers today: Hewlett-Packard; it was behaving badly all day, even before those IBM numbers were out. As you can see, down more than two. Walt Disney, down nearly $3, don't see that too often. Broadcasters suffering on worries that Internet advertising and a softening ad picture over all. General Electric lost more than two, it has two strikes against it -- not only is it a broadcaster, but also a financial stock. And those financial stocks were weak.

Citigroup had great earnings results for its latest quarter; still, the stock sold off, as you can see, down more than 1 1/2. And Eastman Kodak losing nearly 2 1/2.

The market breadth also something people were talking about here. Look at that: almost three-to-one in favor of decliners. And volume was heavy, about the pace we saw last Friday, 1.2 billion shares traded -- Stuart.

VARNEY: You know, Terry, I don't want to dwell on bad news, but you've got tell us about chip stocks because I know that that, as a group, down yet again. Tell us all about it.

KEENAN: Yes, one chip stocks that trades here is Micron Technology, and that stock took another drubbing. Two brokerage firms downgrading Micron shares, PaineWebber and Morgan Stanley Dean Witter cutting their price target to $50, noting falling deram prices. Of course, we take $50 here. As you can see. that stock in a virtual free fall, down from $97 a share this summer -- Stuart.

VARNEY: All right, that's Terry Keenan at the big board. Now over on the Nasdaq, what's becoming a familiar story, Yahoo! sinks again. Yahoo! ended down more than 6 points to 48 15/16, that's another new low. Since it reported profits just a week ago, Yahoo! has lost a stunning 40 percent of its value -- I'll repeat that, Yahoo! down 40 percent in about a week. Amazon.com closed down nearly 2 1/ points, back to 21 15/16, yet new 52-week low.

There were other losers today. Sun Microsystems down more than 3. Juniper Networks ended the day down more than 13 3/4. Chip equipment makes Applied Materials gave back 4 1/4. It closed at 44 1/2.

BAY: Coming up on MONEYLINE, more on a critical quarter at Intel. We'll talk with the man who knows the report best: CFO Andy Bryant. And, a special look at the struggle for survival at some cyberstocks, turning to a tactic that breeds fear in investors. It's called the reverse stock split. Plus, Israeli and Palestinian leaders come to terms in an emergency summit. But will it succeed in stopping the fighting. Stay with us.

(COMMERCIAL BREAK)

VARNEY: In tonight's "Tech Watch:" Intel and the quarter it would perhaps like to forget. Last month the world's number one chip company warned that sales would be soft. That sent investors running for the exits and it pushed the stock down more than 40 percent in less than a month. Today investors pinned their hopes on the beleaguered chip maker's after-the-bell earnings. And it did not disappoint, meeting those already lowered analyst expectations.

Joining me now to talk about the chip power house's earnings, Intel CFO Andy Bryant, live from Intel's headquarters in Silicon Valley.

Andy, Welcome back to MONEYLINE.

ANDY BRYANT, CFO, INTEL: Thanks, Stuart. Good to be here.

VARNEY: Sir, reportedly there is excessive supply, excessive inventory of chips for a variety of application. Will you have to drop the price to get rid of them?

BRYANT: Stuart. we don't see any big excess inventories. What we see is situation where we have demand for more microprocessors. We see demand increasing. Chip as try to make market shares, our flash business growing. Our communications part is growing at more than 50 percent a year. We see a need to allocate our capacity. We do not see excess capacity.

VARNEY: Will you flat out say that you will not match any price reductions by AMD? Will you say that for us tonight?

BRYANT: No, I actually won't make a prices statement as to what we will do. What I will flat out say is we expect to gain market sector share back in the fourth quarter, and we have every intention of doing so.

VARNEY: Reportedly, the PC market is slowing. I wonder if you can tell us by how much is it slowing? Can you quantify this market downturn?

BRYANT: Well, maybe it will help if I put out third quarter in a little bit of perspective. Recognize that in the third quarter our revenues were 19 percent above the prior year's third quarter revenues. If you look at our full year, taking the guidance for Q4, we're about 16 to 17 percent above the prior full year. What we see is pretty normal PC marketplace. What happens is...

VARNEY: Is demand for PCs slowing down? Are PC sales actually slowing?

BRYANT: What actually happened was we forecast a phenomenal growth rate in the quarter and we got a normal growth rate.

VARNEY: How much will normal growth rate as opposed to the phenomenal growth rate that you might have expected, how much growth rate affect you going forward in your next quarter?

BRYANT: We think revenues grow 4 to 8 percent, that's another revenue record for us. The quarter we just finished was a record revenue quarter for us as was the quarter in Q2 we finished then. Again, keep in mind it's a very good business right now. I have strong demand. My problem is I forecast it exuberantly. VARNEY: Can you tell us in just brief moment, can you just tell us what kind of guidance you gave to analysts today going forward? Can you appraise it?

BRYANT: We told them that we see the fourth quarter growing 4 to 8 percent. We told them we thought we'd maintain gross margins from operations, and we told them we'd continue to invest in our business.

VARNEY: That is Andy Bryant, CFO at Intel. And sir, we thank you for joining us again. Thank you.

BRYANT: You're welcome.

VARNEY: Willow.

BAY: Stuart, still to come, Israeli and Palestinian leaders agree to end the violence, but will the cease-fire take hold and end the fighting in the streets? The story in our "MONEYLINE News Digest," after the break.

(COMMERCIAL BREAK)

BAY: In the news outside the world of business, Israelis and Palestinians agree to a cease-fire. Joie Chen joins us from the CNN Center with the "MONEYLINE News Digest" -- Joie.

JOIE CHEN, CNN ANCHOR: Willow, President Clinton helped to broker a cease-fire agreement aimed at ending nearly three weeks of clashed between Israelis and Palestinians. The deal was announced today after an emergency summit at an Egyptian resort.

(BEGIN VIDEO CLIP)

WILLIAM J. CLINTON, PRESIDENT OF THE UNITED STATES: We have made important commitment here today against the backdrop of tragedy and crisis. We should have no illusions about the difficulties ahead.

(END VIDEO CLIP)

CHEN: And as they returned home, neither Israeli prime minister Ehud Barak or Palestinian leader Yasser Arafat publicly announce cease-fire. And the violence continued. More than 100 people have been killed in the recent clashes.

Meantime, in Yemen, the investigation into the attack on the USS Cole intensified today. U.S. law enforcement sources told CNN that bomb-making materials had been found in an apartment near the scene of the attack. Navy divers have now recovered the bodies of six more sailors from the ship's damaged hull. Of the 17 victims, another six are still trapped in the wreckage.

In the United States, the state of Missouri mourned the death of its governor, Mel Carnahan, who was killed yesterday in a plane crash. His son, who was the pilot, and an adviser were also killed. Carnahan, a Democrat, was running for the Senate against incumbent Republican, John Ashcroft. The deaths prompted questions as to whether the presidential debate should be held tonight in St. Louis as scheduled. But Carnahan's wife said her husband would have wanted it to go ahead.

Tonight's debate is the final scheduled face-off between Al Gore and George W. Bush before the presidential elections, now just three weeks.

Candy Crowley joins us now from St. Louis -- Candy.

CANDY CROWLEY, CNN CORRESPONDENT: Joie, the debate will take place here at the Athletic Complex at Washington University, a different sort of debate this evening, a town hall style debate. Gallup, commissioned by the Presidential Commission on Debates, has selected over 145 Missouri voters, all of whom say they are undecided. And they will be asking the questions this evening.

The moderator, as usual: Jim Lehrer, who will be able to pick up on follow-up questions. But mostly, this night belongs to those voters who have brought in here to ask questions of the two candidates. What's at stake? Well, take a look at the latest polls: 47 to 44, according to the latest CNN/"USA Today"/Gallup poll. That is a tracking poll. It is very close, so the stakes tonight are of course very high -- Joie.

CHEN: Candy Crowley for us in St. Louis -- part of our team there.

And stay with CNN for the debate. Our pre-debate coverage will begin tonight at 8:00 p.m. Eastern, followed by the debate itself at 9:00 Eastern.

Now back to you, Willow.

BAY: Joie, thanks -- Stuart.

VARNEY: Coming up: a messy day for media stocks on Wall Street. We have two of the most powerful chief executives in that industry: Edgar Bronfman Jr. and Jean-Marie Messier -- when we return. And we are coming right back for you.

(COMMERCIAL BREAK)

VARNEY: Today on Wall Street: a media meltdown. Across the board, media stocks were hammered on fears of slowing advertising sales and a hard landing for the economy. Time Warner, the parent of this network, hit the hardest: It was down more than 12 points -- Viacom, which owns CBS, down 4 1/4. News Corp. dropped nearly three points. And Disney was down more than 2 3/4. As for Seagram, it lost more than 1 1/2.

In the midst of this media sell-off, Vivendi and Seagram were in town today talking up their deal: Vivendi Universal. Just last week, the European Commission gave the deal conditional approval. Joining me now to talk about their pending merger: Jean-Marie Messier and Edgar Bronfman Jr..

Gentlemen, welcome back to MONEYLINE.

JEAN-MARIE MESSIER, CEO, VIVENDI: Thank you.

EDGAR BRONFMAN, CEO, SEAGRAM: Thanks, Stuart.

VARNEY: Now, Mr. Messier, if I can start with you, you seem to be trying to create precisely the same kind of media company which today was hammered in the marketplace: Time Warner, Disney, News Corp. all way down. Can you tell us why you think this particular kind of company was hit so hard right now?

MESSIER: What I can tell you is that, looking to Vivendi Universal, I do think that we are very strong on all businesses and very strong on all prospects. You will not hear, for the coming quarters and for the prospects of Vivendi Universal, any kind of bad news.

VARNEY: You would be saying that precisely the same thing about all the above media companies, from Disney, News Corp., Time Warner. All would say the same thing: Going-forward prospects are rosy. But something inherent in the nature of the company has brought them down very recently. What is it that has brought them down?

BRONFMAN: Well, one of the things, Stuart, is that these are largely advertising-driven models. It's particularly true of the Internet portals, like AOL. It's true of a lot of businesses at Time Warner, both on the print side and on the media side. Vivendi Universal -- and that's certainly true, of course, for CBS, Viacom and others -- it is really not true for Vivendi Universal.

We are not an advertising-driven model. And, in fact, three months ago, that was a bad thing. Everyone was sort of -- thought the world of advertising and advertising-driven-revenue business were the place to be. We're not an advertising-revenue model. We are a different kind of model. And we think our prospects are very, very strong.

VARNEY: And Mr. Bronfman, let me ask you, because you are attempting to sell the drinks business from Seagram, as I understand it: Isn't this rather a difficult environment for the alcohol beverage industry? Liquor is under attack. And consumption is declining in America, I believe -- rather bad timing to be unloading a liquor business, isn't it?

BRONFMAN: Not at all. As a matter of fact, personal consumption is actually increasing, certainly among premium brands, which is where our portfolio is located. If you look at our performance as a spirit and wine group over the past six or eight quarters, we have had significant growth in each of those quarters. We expect that to continue.

We have a very strong portfolio brand. These brands take decades to build. They're very valuable, not only to Seagram, but ultimately, they'll be very valuable to a potential buyer.

VARNEY: Jean-Marie Messier, you are about to -- or you're going to develop a portal for the European business. Does that worry you, bearing in mind what has happened to Yahoo!, the principal portal based in the United States?

MESSIER: You'll see that what we're trying to build in Europe is quite different from Yahoo! Yahoo! is a PC-centric, advertising- revenues driven company. What we're trying to build with Vivendi, that's the leading European portal as a multi-access portal, not only PC-centric, but what's happening right now. And that's to say: wireless-centric, with the development of the mobile telephone, and with, at the same time, the access to the pay TV. So that's the first different shade.

The second one is that we are not looking only for advertising revenues. Backed by our mobile and pay TV operators, we're looking for much stronger revenue coming from subscriptions and new services to the customers.

VARNEY: Gentleman, I regret to say we're out of time. We do have to do some advertising on this program. Jean-Marie Messier and Edgar Bronfman Jr., thanks very much for joining us, gentlemen.

MESSIER: Thank you.

VARNEY: MONEYLINE will be right back.

(COMMERCIAL BREAK)

ANNOUNCER: THE MONEYLINE NEWS HOUR continues. Here again, Willow Bay in Los Angeles and Stuart Varney in New York.

VARNEY: Tonight on MONEYLINE, a down day for the markets, as investors turn tail on a two-day Dow rally. Fueling the sell-off: further concerns about corporate profits. The market worries about the shape of earnings coming down the pipe.

Plus, a reversal of fortune at Internet speed. We'll check out how some Web companies are resorting to an unusual twist on the stock split.

BAY: But first, more on tonight's top story: two tech heavyweights, Intel and IBM, came out with earnings reports after the closing bell. And so far, they're getting very different reactions from investors.

Now as you might recall, last month Intel rocked the markets with a warning over weak sales. But today, the chip giant beat out lowered profit forecasts, reporting 41 cents a share. That's actually what analysts were expecting before Intel guided the Street lower. Intel earning $2.9 billion, and revenue jumped to 8.7 at the higher end of the range.

A short while ago we spoke to Intel CFO Andy Bryant, and we asked him whether Intel plans to lower prices to increase demand for its chips.

(BEGIN VIDEO CLIP) ANDY BRYANT, CFO, INTEL: We see demand increasing, chip sets that we try to take a market segment share, our flash business is growing. Our communication parts are growing at more than 50 percent a year. We see a need to allocate our capacity, we don't see excess capacity.

(END VIDEO CLIP)

BAY: Turning to the day's other major report, IBM matched market forecasts, earning $1.08 a share, or $2 billion, but sales rose only slightly to $21 billion. That was short of estimates.

Let's see how those stocks are trading in after-hours action. Let's go to Amanda Lang for details -- Amanda.

AMANDA LANG, CNN CORRESPONDENT: Willow, Intel's stocks fell about 24 percent the day after it warned that it would miss this quarter's results. But after hours, it's only about a quarter. It's trading at 36 5/8, after making that previous number, And as you said, a very different reaction for IBM, that stock off 12. It's at 101 after the bell on disappointment about some of the details contained in that report.

Elsewhere, another earnings report from R.F. Microdevices had that stock heading south. It reported second-quarter earning of 10 cents a share but said that its third quarter will be weak. In fact, revenue will be 20 cents -- 20 percent below this quarter's, and that means its earnings will be 4 to 5 cents, not the 11 cents expected.

And finally, Copper Mountain, the communications company, said it posted results of 27 cents per share, one cent better than the Street had expected. But it also said fourth quarter and 2001 results are going to look weaker. That has the stock off 14 1/2. It's trading after hours at 12 3/8 -- Willow.

BAY: Amanda, a tough night. Amanda Lang with all the after- hours action, thanks -- Stuart.

VARNEY: It is becoming a common picture: a lot of red on trading screens, as both the Dow and Nasdaq close down on the session. Concerns over corporate revenue growth put investors into sell-mode, big time, pushing stocks down across the board. At its low, the Dow was off 212 points. It did manage to bounce back a bit, but it finished the day down 149 points at 10089.

The Nasdaq fell for the eighth time in nine sessions. It is now off 21 percent year-to-date. The tech-heavy index closed down today 76 points, just just under 3214.

The S&P 500 dropped 32 points, came off that lows and finished down 24 points at about 1350.

Among the biggest losers on the day: Internet stocks. And the biggest of the bunch were hit the hardest, AOL sinking 9 to $43.60, its lowest level in more than a year. AOL, of course, in the process of merging with CNN's parent Time Warner. Yahoo! down again, losing more than 6 1/4 to around 49. It, too, is at a 52-week low and has gone straight down since reporting results last week.

Amazon fell nearly 2 1/2, eBay down nearly 7, CMGI losing more than 2 points on the day.

Investors found little comfort today from the major earnings reports. Seven Dow components were among the several dozen companies out with results.

Fred Katayama has our earnings roundup.

(BEGIN VIDEOTAPE)

FRED KATAYAMA, CNN CORRESPONDENT (voice-over): A full day of earnings reports know as "super Tuesday" wasn't so super for financial stocks, which got sold off despite strong third-quarter results from investment banks.

Citigroup beat consensus estimates with profits that rose 27 percent, driven by huge fees from advising acquisition deals.

Merrill Lynch also beat expectations. Much of its 53 percent earnings spike came from managing clients' money. But with interest rates high, earnings were weak at regional banks that rely more on lending for revenues.

Banc One and Keycorp met estimates, but profits fell.

DAVID BERRY, KEEFE BRUYETTE & WOODS: In the fourth quarter, I think it is likely that we could see some continued deterioration of problem assets. These trends are big and slow to change.

KATAYAMA: Airlines also posted mixed results. Those that hedged well against rising fuel prices, like Southwest Airlines, saw profits rise, while earnings fell at Alaska Air.

The five non-tech Dow stocks reporting today met or beat Wall Street's estimates, but Honeywell warned that fourth-quarter earnings would come in below expectations. And the fourth quarter is now the focus.

CHUCK HILL, FIRST CALL/THOMSON FINANCIAL: The other big worry, I think, is in technology, where we're seeing the estimates coming down significantly for the fourth quarter. On October 1st, the beginning of the fourth quarter, expectations for earnings growth for the S&P 500 technology sector were 29 percent. That's now down to 25.

KATAYAMA: Likewise at Teradyne: The testing equipment maker met expectations but warned about the fourth quarter. Investors punished the stock.

Of the 133 S&P 500 companies reporting so far this season, 59 percent beat consensus forecasts. But that's lower than the 64 percent average over the last six quarters. (on camera): That batting average could improve when oil companies, flush with profits from gushing crude prices, report in the next few days.

Fred Katayama, CNN Financial News, New York.

(END VIDEOTAPE)

VARNEY: Now to take a look now at some of those stocks, Citigroup down nearly a point and a half, Merrill Lynch down just fractionally, Banc One shedding more than 1 3/4, Southwest Airlines adding nearly a point, Honeywell sliding more than a half point -- Willow.

BAY: Stuart, media stocks dropped sharply today, hit by worries that advertising sales might slow and the broader U.S. economy may be cruising for a hard landing.

Terry Keenan takes a look at how Madison Avenue may put a crimp to on the media world -- Terry.

KEENAN: Well, Willow, it's about as old economy as it gets. When the economy slows down, so too does advertising, since that's one of the first things a company can do to cut costs. Now this time is no different, there are just a few more layers to the story.

First of all, media companies dependence on dot.com dollars. Remember last year's Super Bowl, when more than 17 dot.com advertisers shelled out millions for 30-second spots? Well, don't expect to see many of those this year. Dot.com advertising, which more than quadrupled as a percent of the total advertising pie last year, appears to have peaked with the millennium, and was already falling off before the economy started slowing this fall.

Now the retrenchment has been hitting Internet media plays such as Yahoo! for months now, but today it really slammed the more traditional media players, a big concern about just how much this economy is slowing.

According to "Industry Sources" magazines, cable TV and network radio are the most exposed to a dot.com drought, but today almost no one was spared, AOL, as we mentioned, crumbling to the lowest level since August of 1999. It reports earnings tomorrow. In its last quarter, nearly a third of its revenues came from advertising and from electronic commerce. Its merger partner and parent of this network Time Warner following suit. It was sharply lower, down to 65 today.

Also hard hit, Viacom, Fox and Disney. So make no bones about it, this carnage was not all about Internet advertisers. There is a growing perception that the ad environment overall is weakening and pretty substantially -- Willow.

BAY: So, Terry, what's going on, besides all that, what's going on with Yahoo! trading with a four number -- a four next to it?

KEENAN: Yes, you know, that stock is down 80 percent from its highs set just at the end of last year. That kind of got the ball rolling this morning amid concerns about all this Internet advertising. Holly Becker, the influential analyst at Lehman Brothers, coming out with some negative comments on Yahoo!, noting that according to her calculations it gets about 60 percent of its ad revenue from other dot.coms. She says that even at these prices the stock still isn't cheap, trading at about 100 times next year's earning. And, as you mentioned, it was clobbered today, down into the 40s.

BAY: Terry Keenan, thanks.

Coming up next, more earnings news: Covad Communications sinks in after-hours trading. What is slowing down the high-speed Internet company? We'll ask the CEO.

That's next.

(COMMERCIAL BREAK)

BAY: In tonight's "MONEYLINE Focus:" Covad Communications. After the bell news sent the stock down more than 2. that's about 25 percent. The high-speed Internet company took advantage of the 1996 Telecommunications Act that forced the Baby Bells to share their phone lines.

And today Covad is racing to bring broad band over digital subscriber lines, DSLs. It currently serves 200,000 subscribers in nearly 100 U.S. cities. And Covad posted year-over-year revenue growth of nearly 250 percent. But late today, it reported a wider than expected third quarter loss, adding to what has already been a difficult year with the stock off 87 percent from its high in March.

Joining us now to discuss Covad's prospects, CEO Robert Knowling. Welcome.

ROBERT KNOWLING, CEO, COVAD COMMUNICATIONS: Thank you.

BAY: Walk us through these numbers today. Your revenues, ad you said, grew 15 percent but the number you reported, $66.7 million, was lower than analysts expected. Why? What happened there?

KNOWLING: Well, we actually, if you will, billed about $78 million of revenue for the quarter. We had have -- the fundamentals of the business have never stronger, demand for the service is peaking, so we did book $78...

BAY: All right, so demand for your DSL lines is strong.

KNOWLING: Absolutely.

BAY: The problem was customers paying their bills.

KNOWLING: We have a couple of our channel partners, literally about less than a dozen, that are having some challenges due to the condition of the financial markets. Their inability to have access to capital has let them get behind in some of their bills. BAY: And these are smaller ISP's, I would imagine?

KNOWLING: Yes, these are not the big brand name ISPs that we traditionally do business with.

BAY: What are you, what can you do about it?

KNOWLING: Well, since I do own the end customer because they're on my network, my ability to collect these revenues, in fact, is a high probability. But according to accounting standards and how you must treat your financials, I agreed and had made the decision that I'm not recognize about &11 million of revenue that we did bill, but we're not going to recognize it.

BAY: This is a problem that's only going to get worse, is it not?

KNOWLING: Well, I believe that independent ISPs, due to the financial markets, could have some problems going forward. But we have mitigated the problem in our company, and going forward I still see strong demand, the fundamentals of the business are still great.

BAY: So, did you provide some guidance for the fourth quarter for analyst? What did you tell them?

KNOWLING: We basically took the $11 million off of the top of the projection for the fourth quarter. And of course any collection that we do will be additive.

BAY: One of the things weighing on the stock was concern about the amount capital you have in your business. You just raised $500 million. Is that enough? How far will it take you?

KNOWLING: We are funded through 2002. And in fact we are doing some things to insure that it'll even last a little longer. It's a capital intensive business. But again, we believe we are on track the meeting our business plan.

BAY: About how far will it get you?

KNOWLING: Into 2002.

BAY: Into 2002. You signed up for this job to build a business. How much tougher is that in this climate than when you first signed on and analysts were talking about your company as being a terrifically positioned company as a DSL play?

KNOWLING: Well, it obviously, it's tough because of the access to capital. But again, the fundamentals are great and the prospects for the company look real good in the future.

BAY: And the analysts say you like a good challenge and you got one.

KNOWLING: Absolutely.

BAY: Robert Knowling, thanks for joining us.

KNOWLING: Thank you.

BAY: Stuart.

VARNEY: Just ahead, corporate America faces a double dose of bad news as bond prices go the same way as stock values. We're going to tell you why in a moment.

(COMMERCIAL BREAK)

VARNEY: Here's some more of today's big movers. Broadvision jumped nearly, jumped actually 2 1/4 points. That's nearly 10 percent. That on news it's being added to the S&P 500. It's a software makers. It's going to replace PaineWebber in the index after the close of trading on October 23nd.

IDEC Pharmaceuticals gained nearly 14 1/2. Several brokerages upgraded this biotech firm today after it beat Wall Street profit forecasts yesterday. And Electronics for Imaging plunged about -- plunged actually more than 5 points, that's about 30 percent. The software designer warned it will miss earnings estimates because of weak demand in the printing and imaging market.

BAY: The gloom on Wall Street has extended to another side of the financial markets, bond prices. And last night the country's biggest bond fund manager warned investors about weakening credit conditions.

Ceci Rodgers has the story from Chicago.

(BEGIN VIDEOTAPE)

CECI RODGERS, CNN CORRESPONDENT (voice-over): After weeks of losses in the wake of profit warnings from such corporate stalwarts as Home Depot and Lucent Technologies, corporate bonds took another beating on concerns about worsening credit quality. With the economy slowing and earnings faltering, the country's top bond manager told investors Monday night to avoid corporate bonds at any cost. In an interview on CNN, Bill Gross said he expects the shake out in corporate America to continue.

BILL GROSS, PIMCO: Bankruptcies in junk bonds have totaled about 6 or 7 percent for the last 12 months. I think it's moving higher over the next 12 months as well.

RODGERS: The corporate bond market has also hit with concern about bankruptcies and junk bond losses at major brokerage firms. Some of those concerns proved overstated, but caused enough jitters to send investors fleeing corporate bonds for the relative safety of treasury securities.

Nonetheless, the ratings companies have downgraded more high yield junk bonds this year than at any time since 1990. And investors are now demanding the highest yields on corporate bonds relative to treasuries in nearly a decade to compensate for the perceived higher risk. Still, analysts say today's jittery bond markets are a far cry from 1998 when the Russian debt crisis brought global credit markets to a halt.

DANA JOHNSON, BANC ONE: People really are shunning, to some degree, more of the longer term, lower-rated credits. And in that sense, credit availability has diminished. But it's really nothing like the intensity of the flight to quality that occurred in the fall of '98.

RODGERS: In fact, higher quality corporate bonds keep coming to market.

(on camera): For example, Unilever, the food and soap maker, is expected to come to market this week with $7 billion of debt. And the buzz is investor demand could be strong, especially from Europe.

Ceci Rodgers. CNN Financial News. Chicago.

(END VIDEOTAPE)

BAY: Coming up, the new survival tactic for some hard hit dot.com stocks: packing shares together to make each one look bigger. We'll explain.

(COMMERCIAL BREAK)

VARNEY: Now, here's another sector that took a beating today: Web stocks, as investors hammered stocks such as America Online, Yahoo! and Amazon.com. And those are the Internet's version of blue chips.

For some Web stocks that have long since fallen off their highs, the issue now is to avoid dropping off the Nasdaq completely. More and more Net stocks face the possibility of being delisted by the Nasdaq, and they're taking unusual steps to keep their stocks alive.

Peter Viles has the story -- Peter.

PETER VILES, CNN CORRESPONDENT: Stuart, when these stocks were on the way up, it seemed like we were reporting every night on plans for stock splits. Now they're moving the other way, and we're seeing something very rare on Wall Street: reverse stock splits.

(BEGIN VIDEOTAPE)

(voice-over): Internet music service, Musicmaker.com, is dusting off the Wall Street equivalent of the Hail Mary play: the rarely attempted one-for-10 reverse stock split. At today's prices, 10 shares at 38 cents a share would become one share at $3.80 cents a share.

MARK FOWLER, CFO, MUSICMAKER.COM: We felt that this was the thing for us to do to allow us to maintain our Nasdaq national market listing.

VILES: Musicmaker is in a jam. Its stock has closed below $1 a share for 17 days in a row. And Nasdaq stocks risk being delisted if they close below $1 for 30 straight days. The company then has 90 days to get the stock back above a dollar, or appeal to the Nasdaq for more time. And the Nasdaq isn't messing around. Recently delisted dot.coms include: eFax.com, Value America, K-Tel International and BiznessOnline.com.

The problem is investors hate reverse splits.

BILL FLECKENSTEIN, FLECKENSTEIN CAPITAL: Without exception that I'm aware of -- and I could have missed some -- every time we've had a reverse stock split, the stock has turned around and gone even lower still.

DAVID YERMACK, NEW YORK UNIVERSITY: It's a sign of pessimism, management saying: We don't think the stock is going to bounce back to $10, $20 a share, so we have to do this reverse split in order to get the price back up.

VILES: But there could be more coming. PlanetRx.com, also stuck below $1, is trying to pull off a one-for-eight reverse split. And the list of dot.coms trading under $1 is growing, according to Baseline: Varsity Group, the parent of VarsityBooks.com, has closed below $1 for 23 straight days, Quepasa.com 15 days, theglobe.com 13 days, VitaminShoppe.com seven days, and Beyond.com four days.

(END VIDEOTAPE)

VILES: Now being delisted is not necessarily a death sentence. Delisted stocks can still trade and often do, tracked in what traders call the "pink sheets." But the vast majority of investors prefer the liquidity and the market oversight that come with trading listed stocks -- Stuart.

VARNEY: That's Peter Viles. Thanks very much -- original story -- Willow.

BAY: Stuart, up next, "Ahead of the Curve": some of what you need to know tonight before those markets open tomorrow.

You are watching MONEYLINE.

(COMMERCIAL BREAK)

BAY: Taking a look at some of what could move the markets tomorrow: another big day for earnings, with Dow components Boeing, Ford Motor and Microsoft all due to report. Other techs expected: AOL and Apple Computer, Sun Microsystems, Broadcom, Texas Instruments, EMC and Chase Manhattan Bank.

On the economic front, watch for the consumer price index for September. Economists anticipate a rise of 0.4 percent overall, and the core rate to rise two-tenths of a percent. Also tomorrow, expect housing starts for September. And to stay a step ahead of the markets, tune in to "AHEAD OF THE CURVE" every day at 5:00 a.m. Eastern.

And MONEYLINE would like to hear from you. So send us your comments, questions and feedback by e-mail to moneyline@cnn.com.

VARNEY: Before we close, let me update you briefly on what's happening with IBM and Intel, both out with reports after the bell, of course. And they are showing a very different market reaction -- IBM, which disappointed analysts' expectations in terms of sales, down 12 points, trading at 101. I repeat that: IBM is down at 12 in after- hours. Intel, which just about met what the analysts were expecting -- even though expectations were lowered -- Intel is up just 3/8 of a point in after-hours.

Willow, that's what happening right now.

BAY: A different reaction, indeed.

Well, that is MONEYLINE for this Tuesday. I'm Willow Bay in Los Angeles.

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

"CROSSFIRE" is next.

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