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MAY 24, 2004
Edited by Robin Ajello John Chambers: Nice Going, But...  Cisco Systems (CSCO
) CEO John Chambers finally told Wall Street analysts what they wanted to hear in his May 11 earnings call. After parsing his words carefully in five preceding quarterly calls, he declared the economic recovery a done deal. "We've moved from a 'show me' economy to a 'how strong and how long will it last' economy," Chambers said. Yet despite 21.7% sales growth, to $5.6 billion, and record cash flow of $2.4 billion, investors knocked Cisco shares down 3% the next day.Why was the market so uncharitable? Investors fretted that growth forecasts of around 4% this quarter weren't rosy enough, especially given Cisco's plans to add 1,000 new staff by the end of the year. And although the networking giant is expanding in almost every market and product area, the company's inventories increased 20% during the quarter. That prompted worries that Cisco could wind up with ever-fuller warehouses if expected demand fails to materialize. By Peter Burrows Why Chips Are Chipper Giant chipmakers Intel (INTC ) and Texas Instruments (TXN ) are reporting record demand. So why have their inventories risen to their highest levels in three years? The main reason: Both companies' cutting-edge plants are more efficient than even they expected and are producing many more chips than before. The runup in inventories has prompted some analysts to fret that chipmakers will get stuck with a bunch of unsold product. Not likely, say company executives. They point to roaring corporate demand both at home and abroad. The Semiconductor Industry Assn. said chip sales jumped 32% in March from a year earlier and predicted that sales for the year will rise 20% over 2003.   Citi Starts To Settle  Citigroup (C
) chief Charles Prince III has agreed to pay $2.65 billion to settle a class action suit brought by WorldCom shareholders who lost billions when the company filed for bankruptcy in 2002. Although it won't end Citi's boom-era legal troubles -- Prince has said there are hundreds of other cases outstanding, including those brought by Enron shareholders -- it should largely allow the bank to put WorldCom woes behind it. To cover the settlement and an increase in litigation reserves, the bank took a second-quarter aftertax charge of $4.95 billion. The 17 other defendants in the WorldCom suit, including Bank of America (BAC
) and J.P. Morgan Chase (JPM
), have 45 days to settle under the same formula, says New York State Comptroller Alan G. Hevesi. It's that or head to trial. Making Nice With The WTO The Senate moved closer to ending a showdown with the World Trade Organization on May 11 with a vote to overhaul international corporate taxes. The WTO has approved mounting tariffs on U.S. goods to retaliate for $55 billion in illegal tax subsidies that the Treasury gives exporters over 10 years. The Senate came back with a $170 billion pork-riddled bill that faces high hurdles in the House. Lawmakers there object to three key items: $40 billion in tax breaks on overseas income earned by multinational corporations, a controversial $18 billion package of energy tax breaks, and an effort to raise $90 billion by shuttering business tax loopholes and shelters. The tariffs are likely to keep rising for months as the House and Senate try to resolve their differences. Like A Mouse Afire Walt Disney (DIS ) CEO Michael Eisner offered up a strong second quarter that surprised even his sharpest critics. The company, which has been under attack for its faltering ABC (DIS ) network and misfiring movies, reported a 71% hike in fiscal second-quarter earnings. At 26 cents a share, Disney easily beat the Street's consensus 21 cents estimate; for the full fiscal year, it also said earnings should jump 50%. The reasons: strong results at Disney's cable unit, especially at powerhouse sports channel ESPN (DIS ), and a recovery at its theme parks. Et Cetera... -- Monsanto (MCD ) ended efforts to sell genetically modified wheat. -- Former trustbuster Deborah Majoras is replacing Timothy Muris as FTC chief. -- Levi Strauss is selling its Dockers brand to raise money to pay down its $2 billion debt. Closing Bell: Altria Group  Shares of Altria Group plunged $3.63, to $49.77, on May 12. A Florida Supreme Court decision to review a lower court's move to overturn a $145 billion judgment against Altria and other tobacco giants spooked investors worried they could again face a big legal tab.
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