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Commentary: Herb on TheStreet
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Is Tyco Diverting Attention From the Real Story?
By Herb Greenberg
Senior Columnist
3/13/01 10:39 AM ET


Tyco's (TYC:NYSE - news - boards) planned acquisition of CIT (CIT:NYSE - news - boards) (which came out of left field), does little to change the opinion of bears, who believe it diverts attention from the real issue facing Tyco -- slowing growth. Even before the CIT acquisition Tyco was putting a positive spin on itself, saying that the growth of its all-important electronics biz, which accounts for more than a third of sales, is expected to be up 13% to 15% this year (not including the impact of acquisitions.)

Also in This Column

Tyco, which just this morning said it is comfortable with second-quarter analyst estimates of 61 cents per share, has been unwavering despite earnings warning after earnings warning from competitors. Last week's warning came from CTS (CTS:NYSE - news - boards), which competes in the component market and which forecast a 7% to 12% drop in first-quarter revenue.

Now comes Molex (MOLX:Nasdaq - news - boards), an even bigger competitor in components -- the biggest chunk of Tyco's electronics biz -- which Monday warned that revenue in the first quarter will grow at just 7% to 9%; business is so rocky that Molex wouldn't even venture to guess what the second quarter will look like. How is it that Molex is now saying that growth will be 7% to 9% and Tyco is still talking about 15%? Asks the analyst of one money management firm -- a former Tyco fan -- who is now dubious about the company's growth: "Molex doesn't know what June's going to be, so how can Tyco?" He adds, "Tyco's comments about trends in electronics are so far removed from anything competitors are saying."

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Enter the CIT deal. Asks the dubious analyst, "What does this deal say about Tyco's confidence in its business prospects?" He calls CIT a "second-rate asset in a new business area" for Tyco that lowers Tyco's long-term growth rate. "Bad deal in all respects," he concludes.

Tyco, which had never mentioned the desire to buy a financing biz, counters by saying that "CIT's financing and leasing capacities would greatly boost its existing businesses, including its infrastructure development, undersea fiber optic networking, and security technology arms."

In a good economy, maybe.

  • From Tyco to Titan: Haven't mentioned good ole Titan (TTN:NYSE - news - boards) lately -- not since it was mentioned here in connection with a battle royale it was having with a San Francisco hedge fund that was short its stock. This column went so far as to claim that Titan had launched a witch hunt against short-sellers. Well, with little fanfare -- and no explanation -- Titan dropped the suit several weeks ago against the fund, Botti Brown. Titan has no further comment on the suit, aside from what was in the press release announcing the settlement -- a press release, incidentally, which is conspicuously absent from the press release lineup on Titan's Web site.

    Bottom line, it appears, is that Titan got Botti Brown to make a bunch of clarifications that, to me, amounted to little more than ... clarifications. Key to this appears to be that Botti Brown is saying that Titan's accounting isn't in violation of Generally Accepted Accounting Principles. That's interesting because I don't remember Botti Brown claiming that Titan had violated GAAP. In fact, as this column has pointed out in the past, Botti Brown hired an expert witness who focused on how GAAP allows for various interpretations of accounting rules.

  • International Rectifier, redux: Heard back from International Rectifier (IRF:NYSE - news - boards) Monday, in the wake of an item here that questioned whether the chip company is different than its competitors (in that it hasn't warned of earnings problems).

    A spokesman says that while the company's competitors and customers have issued warnings, IRF is sticking with its guidance of last January of a $5 million to $15 million increase in revenue this quarter. He says most investors don't realize that unlike the last cycle, when little of IRF's biz was sole sourced to customers, now more than one-third is proprietary to IRF. He also says the company now benefits from selling more chips into each product, which should help the company even as the economy stagnates. Will be interesting to watch.

    As originally published, this story contained an error. Please see Corrections and Clarifications.

    Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback and invites you to send any to Herb Greenberg . Greenberg also writes a monthly column for Fortune.

    Brian Harris assisted with the reporting of this column.

    Send letters to the editor to letters@realmoney.com.
    Read our conflicts and disclosure policy.
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    Dow Jones S&P 500 NASDAQ 10-Year Note
    10,023.42 1,069.30 2,112.44 35.03
    Oil *
    76.05
    UP
    17.46
    UP
    2.67
    UP
    7.12
    DOWN
    0.30
    10 Yr
    3.50%
    SPDR Gold
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    +0.34%
    -0.85%
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